* Net profit increases 23 pct in Q3 on an adjusted basis
* Ends September with capital of 11 pct (Adds focus on cost cuts in Spain)
By Jesús Aguado
MADRID, Oct 27 (Reuters) - Improved results in Mexico and Turkey helped Spain's BBVA beat third-quarter profit estimates on Thursday, offsetting weaker lending revenues in its home market where the bank is focusing on cutting costs.
Spain's second-biggest bank by market value posted a 23 percent rise in third quarter profit to 965 million euros ($1.1 billion) compared with a year ago on an adjusted basis, topping analysts' forecasts thanks to strong trading gains.
BBVA shares were up 0.9 percent by 0950 GMT against a 0.03 percent drop in the STOXX Europe 600 banking index, and were among the leaders on Spain's blue-chip Ibex index.
Like peers across Europe, Spanish banks are struggling to lift earnings from loans as interest rates hover at historic lows, while increasing competition in Spain erodes margins.
Though net profit in Spain showed a slow improvement due to lower impairments against soured debts and trading gains, net interest income remained under pressure due to low interest rates and subdued lending growth.
Across the bank as a whole, net interest income, a measure of earnings on loans minus deposit costs, was 4.3 billion euros in the third quarter, down 4 percent against the same quarter last year.
Against this backdrop, BBVA's chief executive Carlos Torres said the lender would have reduced staff by 2,000 employees this year in Spain - around 6 percent of employees there - though he did not specify how these exits would take place.
"We would expect to continue to reduce costs going forward and this is a continuous effort given the weakness of (lending)volumes," said Torres during a conference call with analysts.
Lenders in Spain are trying to beef up revenues after the economy emerged from a deep recession nearly three years ago, but weak demand for loans is also squeezing earnings.
In the third quarter the lender booked a total of 94 million euros in charges related to efficiency measures in Spain with which the lender expects to achieve cost savings of around 45 to 50 million euros per year within the next two years.
Spain makes up just under 18 percent of profits at BBVA, while Mexico accounts for 41 percent and Turkey for 13 percent.
BBVA surprised markets on Thursday by reaching its capital target a year ahead of schedule.
Its core Tier 1 capital levels, a key measure of its financial strength, increased to 11 percent from 10.71 percent on a fully-loaded basis. Analysts had been expecting BBVA's capital ratios to suffer slightly in the third quarter rather than improving.
Its main competitor Banco Santander, in the spotlight because it lags behind an average of slightly more than 12 percent among European peers, said on Wednesday it had finished September with a fully loaded ratio of 10.47 percent.
Santander recently stuck to its target to reach a 11 percent fully-loaded capital by 2018.
$1 = 0.9173 euros Reporting by Jesús Aguado; Editing by Sarah White/Jeremy Gaunt