* Smaller bad loan costs also offset weak lending business
* Gains from selling stock holdings rise over H1 (Recasts with quarterly figures, adds stock sale gains)
TOKYO, Nov 14 (Reuters) - Sumitomo Mitsui Financial Group (SMFG) reported an 2.2 percent rise in quarterly profit, as gains from selling stock holdings helped offset a weak domestic lending business.
Net profit for Japan's No.2 lender came in at 178.7 billion yen ($1.57 billion) for the July-September period, from 174.9 billion yen a year ago, Reuters calculations based on SMFG's six-month results show.
Its gains from the sale of stock holdings rose to 51.5 billion yen over the first half of the year, versus 17.4 billion yen a year earlier.
SMFG and rival Japanese banks have been cutting massive holdings of stocks, originally bought to cement ties with corporate clients - a practice that has come under growing criticism as amplifying banks' risk exposure to market swings and hindering greater corporate governance at issuer companies.
SMFG's domestic lending business, however, continued to struggle given lower returns amid the Bank of Japan's monetary easing, which the central bank has said it will maintain until inflation moves sustainably above its 2 percent price target.
After three years of heavy asset buying failed to drive up inflation, the BOJ revamped its policy framework last year to one capping long-term interest rates, instead of targeting the pace of money printing.
SMFG reiterated its forecast for a 10.8 percent drop in annual profit to 630 billion yen, below an average estimate of 663.1 billion yen from 16 analysts polled by Thomson Reuters. ($1 = 113.8800 yen) (Reporting by Taiga Uranaka; Editing by Himani Sarkar)