* Swiss bank sees slip in wealth management
* UBS warns of threat from rising protectionism
* Stronger than expected profit lifts weak stock (Adds background, detail, CEO comment)
By John Miller
ZURICH, July 24 (Reuters) - Switzerland's UBS posted a stronger-than-expected profit in the second quarter of 2018 but the largest money manager for the globe's rich saw a slip in its core business of banking for the wealthy.
Switzerland's largest bank also struck a cautious tone for the future because fears over a global trade war had made its customers more likely to hoard cash rather than borrow to invest.
Such a development hampers investing and ultimately makes it harder for banks, already grappling with low borrowing costs, to make money.
UBS's net profit of 1.3 billion Swiss francs ($1.3 billion) for the second-quarter beat analyst predictions although the group's wealth management arm, which accounted for more than half of profit, dipped unexpectedly.
That division saw 1.2 billion francs in net outflows, a fall that UBS said was due to U.S. customers liquidating part of their investments to pay taxes.
A spokesman said this had resulted in a 4.6 billion franc hit. One single large outflow came from a U.S. client moving its corporate employee share program, which the bank called a "low-margin business", away from UBS.
"All in all, we have had a strong, good first half," Chief Executive Sergio Ermotti told journalists on a call. Speaking about the performance of wealth management, Ermotti struck a more downbeat note.
"It's clearly not a quarter where I characterise us as being happy," Ermotti said, while adding he is confident UBS will reach its midterm targets for wealth management growth.
Looking to the future, UBS warned of the impact from global trade tensions. The United States has imposed tariffs on EU steel and aluminium and U.S. President Donald Trump threatened to extend them to EU cars and car parts.
That has rattled some bank customers.
"Ongoing geopolitical tensions and rising protectionism have dampened investor confidence and remain a threat," the bank said, echoing a similar warning made this week by another large Swiss bank, Julius Baer.
Rival Credit Suisse is due to publish its earnings next week.
"As our clients become more uncertain about the future, because of ... concerns about the trade war, they are less likely to leverage their investments because they are less certain about their ability to generate returns," the group's finance chief Kirt Gardner said.
Britain's departure from the European Union, loosening its ties with the 28-member trading bloc, further complicates the picture.
Brexit is prompting UBS to relocate some of its 5,000 staff in London to Frankfurt. UBS said on Tuesday that Brexit would cost it more than 100 million Swiss francs.
UBS shares rose by 4 percent in early trading, although analysts at Baader Helvea highlighted the small ebb of money in wealth management and more cautious outlook as dimming an otherwise bright picture.
The bank's market value has tumbled to 59 billion francs from roughly 69 billion at the end of last year.
UBS also said that U.S. dollar interest rates are expected to rise gradually, which is likely to boost its wealth management business.
In July, UBS agreed to pay $850 million to resolve litigation over residential mortgage-backed securities. ($1 = 0.9945 Swiss francs) (Writing by John O'Donnell and John Miller Editing by Keith Weir)