* Q3 net profit 88 bln yen vs 70.3 bln yen in year-ago period
* Retail division pretax profit up 21 pct to 31.3 bln yen
* Wholesale pretax profit slumps 70 pct to 14 bln yen
* International operations pretax profit down 94.5 percent
* Questions remain on volatility of overseas profit -analyst (Adds CFO comment)
By Thomas Wilson
TOKYO, Feb 1 (Reuters) - Japan's Nomura Holdings Inc posted its strongest quarterly net profit in nearly 12 years as its retail and asset management arms surged amid buoyant global equities markets and the brokerage booked sizeable foreign exchange gains.
Overall net profit at Nomura rose by a quarter to its highest since 2006, boosted by individual investors trading stocks, and exchange-traded fund inflows that pushed pretax income at its asset management arm to the highest for 15 years.
Along with a forex gain of around 45 billion yen, the performance helped Japan's biggest brokerage and investment bank record a net profit of 88 billion yen ($804.8 million) for the October-December period.
But strength in retail and asset management was offset by slumping pretax profit at Nomura's wholesale division and international operations, underscoring future challenges for the brokerage as it looks to expand overseas and secure more stable sources of income.
Nomura's key retail division saw pretax profit rise by a fifth from a year earlier to 31.3 billion yen as investors piled into Japanese and foreign stocks, insurance products and discretionary investments.
A 12 percent rise in the benchmark Nikkei average in the third quarter helped to bump up the bottom lines of its rivals - Daiwa Securities Group Inc and SMBC Nikko, Japan's No.2 and No.3 brokerages, respectively.
Nomura's asset management arm also saw pretax profit grow by almost half to 20.8 billion yen, its strongest in 15 years, helped by inflows to ETFs and higher fees.
The momentum of the Japanese stock market this year - the Nikkei has risen over 3 percent in 2018 - would likely be a positive for Nomura, Chief Financial Officer Takumi Kitamura told a conference call with analysts. "The equity market rally is supporting resilient trade in our equities business."
Still, Nomura's wholesale division, which includes global markets and investment banking, saw pretax profit fall more than two-thirds to 14 billion yen, as bond trading remained flat and it paid more bonuses.
The unit's performance dragged on Nomura's overseas business, where pretax profit slumped 94.5 percent to 1.7 billion yen.
The overseas operations - which made a profit for the first time in seven years in the year to March 2017 - has recorded lower pretax profits since April amid a bond trading slump that has also hit Wall Street banks, even as Nomura bolsters its U.S. investment banking operations with new hires to capture more business.
"Overseas has been a drag. They had good profits in the last fiscal year, but will that be a norm?" said Raymond Spencer, an analyst at Moody's. "The first nine months of this year says no. It continues to be volatile."
Nomura bought Lehman Brothers' equities and investment banking business in Europe and Asia in 2008 at the height of the global financial crisis, in a bid to expand from its domestic stronghold.
Nomura said it would book pretax income of around 9 billion yen in the year to March after selling its stake in Asahi Fire & Marine Insurance Co Ltd to e-commerce firm Rakuten Inc.
$1 = 109.3500 yen Editing by Jacqueline Wong