* UBS job cuts part of 3.4 bln Sfr cost-cut programme
* Shares up over 5 pct after 7.3 pct jump on Monday
* Job losses mostly in Switzerland, United States, Britain
* UBS pledges 50 pct payout ratio after measures
* Q3 net loss of 2.172 bln Sfr vs Reuters poll 457 mln Sfr
* UBS flags Q4 net loss amid revamp, own debt charges
ZURICH, Oct 30 (Reuters) - UBS unveiled plans on Tuesday to wind down its fixed income business and fire 10,000 bankers, as it adapts to tougher capital rules that make it more difficult for investment banks to turn a profit since the financial crisis.
Zurich-based UBS will focus on its private bank and a smaller investment bank, ditching much of the trading business that ran up $50 billion in losses in the financial crisis, as well as a $2.3 billion hit from trader Kweku Adoboli last year, now on trial on charges of fraud and false accounting.
Chief Executive Sergio Ermotti, a former Merrill Lynch and UniCredit banker who took over after the Adoboli affair last year, is leading the three-year overhaul, which is aimed at saving 3.4 billion Swiss francs ($3.6 billion), on top of existing spending cuts of 2 billion francs.
Former investment bank co-head Carsten Kengeter will lead the isolation and winding down of its fixed-income activities that are no longer profitable as a result of tougher capital rules on riskier business introduced after the crisis.
The remaining investment bank - equities, foreign exchange trading, corporate advice, and precious metals trading - will be run by Andrea Orcel, a recent Ermotti hire from Bank of America who had co-ran the unit with Kengeter until Tuesday.
``This decision has been hard but it is necessary to create a UBS that is fit for the future,'' Ermotti said. ``The business model we are creating will be unique in the banking industry.''
The measures translate to a 15 percent staff cut, taking UBS's overall staff to 54,000, from 63,745 now, already down from a 2007 peak of 83,500 as banks have shed tens of thousands of jobs globally since the financial crisis of 2008.
Of the job cuts, 2,000 will be front-office investment banking staff, the revenue generators. About 2,500 positions will go in Switzerland, slightly more than that in the United States, and the rest in Britain, Ermotti said.
A smaller investment bank will leave UBS focused on its private bank, which looks after the affairs of the wealthy. With 1.6 trillion francs in assets, it is the second-largest operation of its kind in the world after Bank of America.
UBS shares, which soared 7.3 percent on Monday in anticipation of the announcement, were up another 5 percent at 13.79 francs by 1050 GMT in exceptionally heavy trading, their highest since July 2011, compared with a 0.7 percent rise for the European bank sector index.
UBS, which took a government bailout in 2008 after more than $50 billion in mortgage losses, is effectively admitting that an attempt to crack the fixed-income big league has failed.
Deutsche Bank said on Tuesday it hopes to benefit from the UBS cuts as its investment bank delivered record third-quarter sales and trading revenue.
But some analysts said other banks might be forced to follow suit even though the UBS strategy was risky.
``While other banks like CS are still sticking to their investment banks, which do not even earn their cost of equity, UBS takes the lead in responding adequately to investors' demands,'' said Sarasin analyst Rainer Skierka.
Credit Suisse said last week it was also cutting more costs to boost its profits and capital but did not announce the same kind of radical restructuring as UBS.
INVESTMENT BANK LOSSES
After settling a damaging U.S. tax probe in 2009, UBS had just started to rebuild client confidence when the $2.3 billion trading scandal surfaced in September last year.
Adoboli, who worked on the bank's London-based exchange-traded equities funds desk, has pleaded not guilty to two counts of fraud and four of false accounting.
Ermotti's overhaul comes against a backdrop of far tougher regulation on riskier securities trading activities, and represents a return to advisory roots stemming from UBS's purchase of Warburg, a British merchant bank, in 1995.
The bank aims to pay out more than 50 percent of profits to shareholders from 2015, after paying its first post-crisis dividend last year, a modest 0.10 francs a share. It has put away funds in the third quarter for an unspecified dividend this year, financial chief Tom Naratil told journalists.
The costs related to the investment banking split will also lead to a fourth-quarter and full-year loss, when taken together with charges on the bank's own debt, UBS said.
The private bank also faces challenges, with profits falling as Swiss banking secrecy is weakened by repeated demands from foreign governments determined to recoup tax on undeclared funds held in offshore accounts.
However, the unit secured 7.7 billion francs in net new money from clients in the third quarter, which represents the highest result in a third quarter - typically a slow one for the business due to summer holidays - in five years.
UBS swung to a third-quarter net loss of 2.172 billion francs, hit by the restructuring charges and 863 million francs written off the value of its own debt. Analysts in a Reuters poll had forecast a net profit of 457 million francs.
UBS is aiming to reduce risk-weighted assets to below 200 billion francs by the end of 2017, from 301 billion currently. Of this the investment bank will account for roughly 70 billion francs, less than half of what it accounts for today.