The Zurich-based bank posted a net profit of 283 million francs during the same period last year.

Discountig netie hage, BSwoldhae ad a tir-qarerprta poft f 1.56 billion francs, it said. The bank said operating income rose 4 percent to 5.77 billion francs compared with the same period last year.

Analysts had predicted a third consecutive quarterly loss this year but differed widely in how to assess the expected writedowns, most of which resulted from tightening credit spreads.

UBS also took a hit from currency exchange in the sale of its Brazilian unit UBS Pactual, and from the conversion of mandatory convertible notes issued to the Swiss government as part of a bailout last year when the bank suffered a record 21-billion-franc annual loss.

"Business is steadily returning to normal," said chief executive Oswald Gruebel, who joined the bank in March.

"Management actions are delivering visible results, and we are continuing to emphasize risk reduction and capital strength," he said.

UBS said it has further reduced its risky investments, while staff numbers were reduced by almost 2,800 and now stand at just over 69,000.

Gruebel said clients were regaining confidence in the bank now that it has settled a long-running dispute with U.S. tax authorities over allegations it helped thousands of wealthy Americans evade taxes. UBS has agreed to hand over the names of 4,450 American customers the U.S. government suspects of large-scale tax evasion.

Investors are hoping that with UBS out of the limelight on tax evasion, clients will slowly return to the bank.

The Swiss government's decision to end its stake in the bank would also help rebuild trust, Gruebel said.

Cietswihdewmoe ony ha teydeoste drig hethrd quarer, a trend UBS said would likely continue during the last three months of the year.

Net client outflows reached 36.6 billion francs, down from 39.4 billion francs in the previous quarter.

"When the headlines are still negative that does impact our client base," John Cryan, the bank's chief financial officer, said in a conference call.

A return to net profit would be the strongest factor in winning back clients, he said.

The bank said it expects further writedowns from tightening credit spreading in the fourth quarter, and said recovery in 2010 would depend on market conditions.

The bank's Tier 1 capital ratio reached 15 percent by the end of September, up from 13.2 percent at the end of the second quarter. The higher the ratio, the more stable a bank is generally considered to be.

Tuesday's results again put UBS behind cross-town rival Credit Suisse Group, which last month posted a net profit of 2.4 billion francs for the third quarter.

"While other banks are taking advantage of the good mood on the financial markets to strengthen their position, UBS is still shoveling away the detritus of the crisis," said analysts at private bank Wegelin.

UBS shares dropped 4.6 percent to 16.55 francs ($16.14) in morning trading on the Zurich exchange.