* Like peers, suffers slump in fixed income trading
* Q3 net income 2 bln euros, above 1.9 bln forecast
* Revenues dip, but cost cuts and asset sale help (Adds details)
By Maya Nikolaeva
PARIS, Oct 31 (Reuters) - France's biggest bank BNP Paribas posted an 8 percent rise in third quarter profit though the improvement was overshadowed by a weak performance at its market business.
Trading in the lender's fixed income business fell 26 percent from a year ago, mirroring similar falls at European rivals Barclays and Deutsche Bank.
Major declines in bond trading revenue hit investment banks due to reduced client activity and low market volatility compared to a year ago, when Brexit and the U.S. election led to market turbulence.
"BNP Paribas reported in the third quarter good business development in an improved economic environment in Europe," the bank said in a statement.
"However, the market context this quarter was unfavourable for the market activities".
Overall, revenues fell 1.8 percent to 10.39 billion euros ($12.1 billion) over the quarter, below the 10.6 billion euros expected by analysts. Revenues were weighed down by adverse foreign exchange movements.
Fixed income trading fell 26 percent, worse than U.S rivals which on average saw a 22 percent fall in FICC (fixed income, currencies and commodities) operations, but better than a slump of more than 30 percent in that area at European peers such as UBS, Deutsche Bank and Barclays.
BNP Paribas cut its operating expenses at its corporate and institutional bank by 6.2 percent in the third quarter, which resulted from cost-savings measures launched at the beginning of 2016. It also identified 200 processes that would be automated by the end of 2018.
Overall, third quarter net income stood at 2.04 billion euros, above the 1.9 billion euros expected by analysts, boosted by a sale of a stake in Indian insurance company SBI Life.
The accounting gain also helped offset a 172 million euros goodwill impairment on its TEB Bank in Turkey where the Turkish lira depreciated by 20 percent versus the euro year-on-year.
"The beat is coming from one offs from non-operating items," said one trader at an investment bank on BNP Paribas' results.
$1 = 0.8595 euros Reporting by Maya Nikolaeva and Jean-Michel Belot; Editing by Sudip Kar-Gupta