UPDATE 2-RBC profit falls, but better than expected

(Adds analyst comment, detail, Canadian banking results)

TORONTO, Aug 28 (Reuters) - Royal Bank of Canada (RY.TO: Quote, Profile, Research, Stock Buzz) said on Thursday third-quarter profit fell 10 percent after C$498 million in writedowns, but charges were lower than many had feared and underlying profit beat market expectations.

"What's interesting is the very strong numbers coming out of retail (banking) in Canada, up 19 percent. That is a clear leader in the space," said Darko Mihelic, an analyst at CIBC World Markets.

Canada's largest bank reported net income of C$1.26 billion ($1.2 billion), or 92 Canadian cents per share, in the three months ended July 31. That compared with a profit of C$1.39 billion, or C$1.06 per share, in the same 2007 period.

Excluding capital market writedowns and amortization of intangibles, Royal's earnings were C$1.14 a share, analysts said, which beat the mean analysts' estimate of C$1.07 before items, according to Reuters Estimates.

"Having seen all of the Big Six banks report, I would say that the winner of the reporting season is Royal," Mihelic said.

RBC logged pre-tax writedowns of C$342 million, or C$153 million after tax, in its capital markets segment, as well as C$53 million, or C$33 million after tax, on its U.S. banking investment portfolio.

Some analysts had expected capital-markets writedowns to be as high as C$1 billion in the quarter.

Provisions for credit losses rose 88 percent to C$334 million from C$178 million a year earlier. All of Canada's big banks boosted their loan-loss provisions this quarter.

In its core Canadian banking business, net income surged 19 percent to C$709 million, which the bank said reflected strong volume growth across all business lines and "cost containment efforts."

Return on equity, a key profit measure, was 19.4 percent in the quarter, down from 24.4 percent a year earlier.

Royal Bank did not increase its dividend in the quarter. ($1=$1.05 Canadian) (Reporting by Lynne Olver and Jennifer Kwan; Editing by Ted Kerr)