* Q2 net profit down 3 pct on extraordinary charges
* Q2 underlying profit up 14 pct
* End-Q2 core capital 10.80 pct vs 11 pct in Q1
* End-Q2 NPLs of 3.92 pct vs 4.02 pct in Q1 (Breaks down results from different markets)
By Jesús Aguado
MADRID, July 25 (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 second-quarter results from Spain's biggest bank.
The bank - which took over Banco Popular in June 2017 - reported a net profit of 1.7 billion euros in the April to June period, down 3 percent from a year earlier. Analysts had expected net profit to come in at 1.65 billion euros, according to a Reuters poll.
The results included restructuring costs of 300 million euros ($350.3 million) related to Popular. Santander has said it expects total restructuring costs of around 1.3 billion euros linked to the Popular deal.
Excluding restructuring costs, underlying net profit in the quarter was up 14 percent, boosted by a robust performance in its largest market, Brazil.
Santander's diversification overseas, especially in Brazil, has helped the bank to cope with tough conditions for banks in Europe in the years since the financial crisis.
In Brazil, where the bank makes more than a quarter of its profits, net profit rose 6.1 percent from a year ago, boosted by solid growth in business volumes. In Spain, its second-biggest market, net profit fell more than 80 percent on Popular-related charges.
In Britain, its third-largest market, net profit fell 8.8 percent, partly due to ongoing competitive pressure on income and costs related to regulation and digital projects.
Profits in the United States rose 41 percent.
Santander's shares were up 0.5 percent on Wednesday, against a 0.2 percent rise on the European STOXX banking index.
BELOW-PEER CAPITAL RATIOS
Analysts said results were solid but also highlighted that capital ratios remained below European peers.
"Geographically, UK/Latam/US came better. The miss on capital and questions about sustainability of Brazil's performance might temper the share price reaction," UBS said in a note to clients.
Santander ended the quarter with a fully-loaded core capital ratio, a closely watched measure of a bank's strength, of 10.8 percent, compared with 11 percent in the previous quarter.
The capital reduction followed the elimination of excess capital from minority interests in its U.S. business and a 12 basis point reduction related to the valuation of the held-for-sale portfolio in the quarter.
Net interest income, a measure of earnings on loans minus deposit costs, was 8.47 billion euros, down 1.5 percent from the second quarter of last year. Analysts had forecast a NII of 8.4 billion euros
Like its European rivals, Santander is struggling to lift earnings from loans in Spain with interest rates hovering at historic lows and rising competition eroding margins.
However, lending income was up 0.3 percent against the previous quarter thanks to the contribution from Popular, which helped NII to rise 25 percent against the same quarter of last year in its Spanish home market.
Santander was confident of achieving its 2018 goals and those laid out in its 3-year plan, Santander Chairman Ana Botin said in a statement.
Theh bank also managed to cut its non-performing loan ratio at group level to 3.92 percent from 4.02 percent in a sign that Spanish banks are cleaning up their balance sheets faster than rivals in Italy thanks to Spain's solid economic recovery.
$1 = 0.8565 euros Reporting by Jesús Aguado; Edited by Paul Day, Sunil Nair and Jane Merriman