* Q2 net 610 mln zlotys vs expectations of 506 mln zlotys
* Interim CEO sees recovery in margins, mortgages
* Shares rise as much as 6 percent to highest since January
(Releads with second quarter, shares)
By Piotr Bujnicki and Chris Borowski
WARSAW, Aug 27 (Reuters) - PKO, Poland's top bank by assets, surprised investors on Thursday with a smaller-than-feared earnings fall in the second quarter despite the economic downturn, helping its shares rise to their highest level since January.
Investors were worried that the state-controlled lender, with a large exposure to retail clients, would suffer from a rising number of bad loans and its battle to maintain its market share of deposits with high rates just as the central bank cut borrowing costs.
However, PKO beat expectations across the board, reporting a second quarter net profit of 610 million zlotys ($211 million), according to a presentation on its web site, nearly a fifth more than the mean forecast in a Reuters poll.
The bank's figure confirmed an earlier Reuters calculation based on its first-half results.
"The net profit is better than expectations due to a combination of factors, including lower costs and higher income from fees after PKO raised many of them during the quarter," said Marek Juras, head of research at BZ WBK brokerage.
PKO, whose shares are flat on the year and underperformed an 18 percent gain of Warsaw's banking index, was Poland's best performing large cap on Thursday, gaining 5.3 percent by 1209 GMT after rising as high as 6 percent.
The stock has been weighed by a planned 5 billion zloty rights issue -- Poland's largest share issue since PKO listing in 2004 -- coupled with a hefty dividend payout.
A clash over strategy led to the dismissal Jerzy Pruski as PKO chief executive last month. Its shareholders will also pick new supervisory board members on Monday, sparking fears that the turmoil on top could hurt PKO's prospects.
But the lender's interim chief executive struck a positive note, saying he expected the pressure on margins to stabilise after a rough first half and continued growth of its mortgage portfolio.
"We see further growth of the market potential when it comes to gathering new deposits and mortgages and stable financial results," Wojciech Papierak told a news conference.
The bank also said it cut its workforce over the last year by nearly 5 percent to 28,794. ($1=2.893 Zloty) (Editing by Will Waterman, Erica Billingham and Karen Foster)