* Q2 pretax profit 1.15 bln crowns, vs forecast 2.08 bln
* Repeats 2009 writedowns on loans 8-10 bln crowns
* Sees higher writedowns in Baltics, lower in Norway
* Sees signs of recovery even if uncertainty remains high
* Shares down 4 percent, underperforming sector index
(Adds details, analyst, updates shares)
By Aasa Christine Stoltz and Joergen Frich
OSLO, July 10 (Reuters) - Norway's DnB NOR ASA posted a bigger-than-forecast drop in second-quarter profit on Friday after losses and write-downs at its Baltic operations, and said it expected further writedowns there in the coming quarters.
Norway's largest financial services group said it saw signs of recovery, mainly in Norway, but uncertainty over the economic outlook nevertheless remained high.
Pretax profit at the group, whose brands include Vital, Nordlandsbanken and Postbanken, fell to 1.15 billion crowns ($176 million) from 4.36 billion a year ago, below the median forecast of 2.08 billion in a Reuters poll.
"There is still great uncertainty about future economic developments, but there are now several signs that the negative trend may be about to reverse," DnB NOR said.
DnB NOR said its Norwegian operations developed better than expected, with lower losses on loans and a continued rise in demand for home mortgages.
Shares in DnB NOR, which plunged in 2008 but have risen more than 65 percent so far in 2009, fell 4.03 percent to 44.00 crowns by 1036 GMT, compared with a 0.3 percent drop in the DJ Stoxx European bank index.
"We reiterate our view that the DnB NOR stock is vulnerable to any negative news given the share price rally since bottom," analysts at brokerage Carnegie said in a note to clients.
Another analyst, who asked not be named, said although the report was weaker than expected at the bottom line, after currency losses and write-downs, results were largely in line with expectations.
Along with other Nordic banks, DnB NOR has seen years of solid growth, but the global downturn has hit results in both home markets and the Baltic states, where it has investments through its 51 percent-owned DnB NORD.
The Baltic countries are fighting recession and high unemployment amid the global downturn, and groups heavily exposed in the region are faced with rising loan losses. Banks have also reduced lending, contributing to the downturn.
Other Nordic banks present in the area are Swedbank, SEB and Nordea, whose shares fell after the DnB NOR news. The banks are due to report quarterly figures on July 17, 20 and 21, respectively.
HIGHER WRITEDOWNS
DnB NOR reiterated it saw total 2009 writedowns on loans between 8 to 10 billion crowns, but predicted higher writedowns in the Baltics than earlier forecast and lower in Norway. Developments in its shipping and commercial property remained uncertain, it said.
DnB NOR in May forecast writedowns in DnB NORD, owned with Germany's Norddeutsche Landesbank, of 3 billion to 4 billion crowns, 0.7 billion to 1 billion in shipping and 4 billion to 5 billion for the remaining portfolio, including its Norwegian operations.
DnB NOR, the first Nordic bank to report second-quarter figures, stood by its target of pretax operating profit before writedowns of 20 billion crowns in 2010.
DnB NOR said the main reason for the decline in group profits stemmed from impairment losses for goodwill in Latvia and Lithuania and large writedowns on loans.
"We have negative value adjustments of 1.4 billion crowns in the quarter," Chief Executive Rune Bjerke told a presentation. "Writedowns are expected to remain high in DnB NORD over the next few quarters," DnB NOR said.
The group said it was adequately capitalised and maintained its target to increase core capital ratio through organic growth to a minimum 8 percent by end-2010 from 7.3 percent by mid-2009.
DnB NOR said its cost-cutting programme targeting reductions of 1.4 billion crowns by end-2010 was ahead of schedule.
"Business operations will generate sufficient capital to compensate for higher writedowns," Bjerke said. ($1=6.533 Norwegian Crown) (Editing by David Holmes and Simon Jessop)