UPDATE 1-Investment banking boosts profits for French bank Natixis

(Updates with CEO, analyst quotes, details)

PARIS, Aug 1 (Reuters) - French bank Natixis reported a better than expected rise in second-quarter profits to 487 million euros ($575 million) on Tuesday, benefiting from a bumper quarter for its investment banking business.

It outperformed U.S. and European rivals in fixed income and share trading, as its investment banking division's quarterly revenues reached a record 1 billion euros.

Natixis is near to completing a restructuring aimed at cutting costs and has been focusing on so-called asset-light businesses, such as asset management, insurance and payment services, in an effort to adapt to tougher European capital requirements.

Natixis said its net profit rose by 28 percent in the second quarter, with a strong rise in asset management and insurance sales also contributing to the rise, with the result beating the average of analysts' forecasts of 388 million euros given in a Reuters poll.

"We are creating free capital which allows us to have a generous, in my opinion, dividend policy, and ... have the capacity to invest in external growth," Chief Executive Laurent Mignon told reporters during a conference call.

Its corporate and investment banking division posted a 16 percent rise in revenues, as revenues from fixed income and currency trading rose 13 percent, while derivatives trading was up 34 percent.

Bank executives say the only ways to make the investment bank business work is to trade very large volumes or focus on high-margin products, or do both. Natixis adopted a strategy in 2015 of focusing on designing solutions for clients, rather than on "flow" business. "When clients have a strategic transaction going on and they want to cover currency risk, we would offer them contingency hedging ... where a margin would be higher," Mignon said, giving an example of how its investment banking strategy works.

Natixis said its return on tangible equity in the quarter rose 2 percentage points to 13.7 percent on a year ago, above its 2017 target of 12 percent.

"Strong results ahead of the investor day, management will cruise on a high basis to the investor day on Nov. 20," analysts at Jefferies said in a note. ($1 = 0.8477 euros)

(Reporting by Maya Nikolaeva and Julien Ponthus; Editing by Sudip Kar-Gupta, Greg Mahlich)