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UPDATE 3-Popular takes shine off Brazil-driven Santander profit

* Q3 net profit down 14 pct on extraordinary charges

* Q3 underlying profit up 17 pct

* Ends Q3 with NPLs of 4.24 pct vs 5.37 pct in Q2 (Adds comments from CEO on situation in Catalonia)

MADRID, Oct 26 (Reuters) - Banco Santander's net profit was hit by one-off restructuring costs from its acquisition of troubled Banco Popular, which offset otherwise solid underlying third quarter results from Spain's biggest lender.

Santander's shares were up 0.7 percent on Thursday, against a 0.5 percent drop on the European STOXX banking index, after it reported a net profit of 1.46 billion euros ($1.73 billion).

Analysts, who on average had forecast a net profit of 1.85 billion euros, had expected Santander to begin booking costs related to Popular in the last quarter of 2017.

However, Santander consolidated Popular into its accounts for the entire third quarter after taking it over in June for a nominal one euro after European authorities stepped in to avert a collapse following a run on the bank.

Santander has said it expects total restructuring costs of around 1.3 billion euros related to the deal. In the third quarter, the absorption hit net profit by 122 million euros.

The bank was not expecting to book further restructuring costs this year apart from 300 million euros incurred in the third quarter, chief executive officer, Jose Antonio Alvarez, said in a conference call to analysts.

Excluding extraordinary charges, Santander's underlying net profit rose 17 percent, boosted by its main market, Brazil, where net profit jumped 35 percent.

Brazil outperformed the bank's other units, including Britain where net profit grew almost 4 percent.

Analysts at Deutsche Bank highlighted that the lender had booked revenue growth in eight of its ten core markets.

As with its recent positive strategy update - when it slightly lifted its 2018 profitability targets - the bank's quarterly results are expected to be partially overshadowed by the independence stand-off in Catalonia, where Santander has a 13 market share of deposits.

In an attempt to calm deposit holders following a banned Oct. 1 vote for independence in the region, Caixabank and Banco Sabadell, the most exposed to Catalonia, moved their legal headquarters out of the region

Santander's CEO said the situation in Catalonia was not good for business throughout Spain, though it was still too early to assess the impact on activity.

Santander's net interest income (NII) - a measure of earnings on loans minus deposit costs - was 8.7 billion euros in the quarter, up 11.3 percent from last year but up just 0.9 percent against the previous quarter.

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

In the Spanish home market, NII was down 0.3 percent from last year.

Santander ended September with a core tier-1 fully loaded ratio of 10.80 percent, compared to 10.72 percent in July.

It also reiterated it was on track to meet financial targets, including double digit earnings per share growth by 2018.

The bank cut its non-performing loan ratio to 4.24 percent of total loans at end-September from 5.37 percent in June after sold a majority stake in a 30 billion euros property portfolio inherited from Popular. ($1 = 0.8451 euros) (Reporting by Jesús Aguado; Editing by Himani Sarkar and Alexander Smith)