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UPDATE 2-Brazil growth helps Banco Santander, Popular deal hits capital ratio

* Brazil profits jumps 42 pct

* Popular lifts earnings in Spain

* But core capital ratio falls to 9.58 pct

* Bank expects to sell 51 pct stake in Popular property assets (Adds details on Popular from conference call)

MADRID, July 28 (Reuters) - A buoyant Brazilian business and a revenue boost from the integration of Banco Popular helped Banco Santander post a 37 percent rise in second-quarter net profit, though the bank's capital and bad loan ratios were hit by the acquisition.

The euro zone's biggest lender by market value - which consolidated Banco Popular in its accounts for the first time since it took over the troubled Spanish lender on June 7 - reported net profit of 1.75 billion euros ($2.05 billion) in the period from April to June, beating analysts' forecast.

Net interest income (NII) - a measure of earnings on loans minus deposit costs - was 8.6 billion euros in the quarter, up 13.6 percent from last year.

This was mostly underpinned by a 42 percent jump of quarterly profits in Brazil, which comfortably outperformed the bank's other units, including Britain where a weaker pound sent profits down 18 percent in the quarter.

Like European rivals, Santander is struggling however to lift earnings from loans in Spain as interest rates hover at historic lows, while increasing competition erodes margins.

In the Spanish home market, NII was down 4 percent from last year.

Chief Financial Officer Jose Garcia Cantera told a conference call with analysts it would be back on the rise in the next quarters, especially as the revenue and profit boost expected from the Popular acquisition materializes.

European authorities stepped in to avert a collapse of Banco Popular in June following a run on the bank, orchestrating a last-minute rescue by Santander, which took it over for a nominal one euro.

When taking into account Popular, NII was up 9.6 percent from last year and 15 percent from the previous quarter.

The downside was a hit on the bank's core Tier-1 fully loaded capital ratio, which fell to 9.58 percent at end-June from 10.66 percent in March as a result of the integration.

Santander is expected to quickly address this situation after completing next week a 7 billion euros capital increase for which it received strong demand. Without Popular, the ratio would have stood at 10.72 percent.

Santander said it provided 13 billion euros of liquidity on June 7 to stabilize Popular and that deposits at the lender had rebounded by 6.5 billion euros to date.

Chief Executive Officer Jose Antonio Alvarez also said the bank hoped to quickly sell a majority stake in a 30 billion euros property portfolio inherited from Popular which increased Santander's bad loan ratio to 5.37 percent of total loans at end-June from 3.74 percent in March. ($1 = 0.8557 euros) (Editing by Julien Toyer and Adrian Croft)