UPDATE 1-BNP Paribas posts smaller-than-expected fall in Q2 profit

* BNP Paibas Q2 net income down 6.4 pct, less than expected

* BNP says CIB revenue rise 4.6 pct, costs down 6 pct

* BNP's international financial services revenue up 3.2 pct

* BNP says revenue in domestic markets down 0.3 pct (Updates with details, statement)

PARIS, July 28 (Reuters) - BNP Paribas, France's biggest listed bank, posted a smaller than expected drop in second-quarter net income on Friday, as it benefited from cost cuts and stronger revenue in its investment banking division.

BNP Paribas is overhauling business and chopping costs, as it invests to digitize more functions and to diversify activities even more into consumer finance or asset management to protect profits from a low interest rate environment.

"CIB (corporate and institutional bank) had very good quarter," BNP Paribas said in a statement after it reported a 6.4 percent drop in net income to 2.396 billion euros, beating by far the average estimate of 1.91 billion in a Reuters poll of five analysts.

CIB revenue rose 4.6 percent, as a 25.8 percent rise in equity trading and prime dealing services helped cushion a 15.9 percent fall in fixed income trading revenue.

This compares with 1 percent rise for equities trading among five U.S. biggest banks on average and a 17 percent dip in fixed income trading.

BNP has chosen to develop a strategy for corporate clients in Europe, called "One Bank," which focuses on cross-selling between divisions and aims at offering a wide range of products in order to win loyalty of companies. Its corporate banking revenue rose 13.5 percent, boosted by growth in cash management and trade finance.

CIB expenses were down by 6.0 percent due to cost savings measures implemented as part of the banks transformation plan launched in the beginning of 2016, aimed at improving the pre-tax return on equity for the business to 19 percent in 2020 from 13.3 percent in 2016.

Overall, revenue decreased to 10.94 billion euros from 11.32 billion a year earlier when it reported an exceptional capital gain of 597 million from the sale of a stake Visa Europe.

Revenues also came in above the 10.84 billion euros expected by analysts, as stronger earnings in corporate and institutional banking, international financial services helped to offset a slight decline in European retail banking markets revenue.

($1 = 0.8559 euros) (Reporting by Maya Nikolaeva and Julien Ponthus; Editing by Sudip Kar-Gupta and Leigh Thomas)