UPDATE 3-Australia's Westpac sees profit rebound as economy recovers, shares surge

* 1Q21 cash earnings of A$1.97 bln vs A$1.70 bln a year earlier

* Result driven by reversal of bad debt charges, outlook improves

* No. 3 bank sees restored mortgage growth and improved margins

* Shares surge 6% to highest in a year (Updates throughout with share price reaction)

SYDNEY, Feb 17 (Reuters) - Westpac Banking Corp on Wednesday reported a rebound in first quarter profit, benefiting from a reversal in bad debt charges as the Australian economy and the housing market recover from the coronavirus pandemic.

The strong result pushed Westpac’s shares up more than 6% to their highest level in a year.

Australia’s success in containing the pandemic, supported by unprecedented amounts of monetary and fiscal support, has helped the country’s banks overcome bad debt provision charges and near-zero interest rates.

Westpac’s profit for the three months to Dec. 31 stood at A$1.97 billion ($1.53 billion), 16% higher than the A$1.70 billion profit of a year earlier. Earnings were boosted by a A$501 million impairment benefit due to a better-than-expected outlook.

The quarterly result from Australia’s third-largest bank was also more than double the quarterly average of A$808 million in the second half of fiscal 2020, the lender said.

Core earnings at the Sydney-based bank were up 28%, driven by higher revenues and improving margins, it said, as the resurgent housing market drives a rebound in home loan sales.

“The economy is recovering, consumer and business confidence is strong, and the labour market has been much more resilient than expected,” said Chief Executive Officer Peter King.

“While uncertainty remains around the impact of local COVID outbreaks, there is cause for optimism.”

The result was much better than analysts from Credit Suisse, Goldman Sachs and Morgans Financials expected and Westpac’s shares rose more than 6% to A$23.87 against a slightly lower broader market.

Westpac added, however, that the good quarter result was unlikely to be replicated through the rest of the year, because “margins remain under pressure and investment spending is likely to increase through 2021.”

Westpac’s total stressed asset exposure fell 15 basis points to 1.76% in the quarter, it said, while assets on its watchlist fell to 0.8%.

Westpac also announced that it would revert to providing only half-year profit updates, rather than quarterly statements, as it had only done so last year to update the market during the pandemic.

$1 = 1.2887 Australian dollars Reporting by Paulina Duran in Sydney and Nikhil Kurian Nainan in Bengaluru; Editing by Maju Samuel, Shailesh Kuber, Sonya Hepinstall and Jane Wardell