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* Takes further 600 mln stg PPI charge
* Credit impairment up 42 pct on model change
* CET1 unchanged at 11.6 pct
* Shares up 1.5 pct by 0847 GMT (Updates shares, adds CEO quote)
By Lawrence White
LONDON, Oct 27 (Reuters) - Barclays on Thursdayreported a forecast-beating bounce in third-quarter profits to1.7 billion pounds ($2.08 billion), benefiting like its U.S.rivals from a bumper quarter for its investment bankingbusiness.
The stronger performance from Barclays' investment bankprovides an early endorsement of Chief Executive Jes Staley'srestructuring plan, and is likely to quieten calls for Barclaysto divest the business entirely and focus on simpler retail andcommercial activities.
Staley has committed to growing the investment bankingbusiness because he believes it offers 'counter-cyclical'earnings potential compared with corporate and retail banking.
"What we have seen post the Brexit vote with the volatilityin the market is confirmation that diversification bringsbenefits," Staley told reporters on a conference call.
Morgan Stanley and Goldman Sachs both reporteda rise in third-quarter profits of more than 50 percent, largelyfrom the surge in bond trading as investors fret over monetarypolicy around the world.
Barclays group pretax profit for the three months to the endof September, excluding notable items, was up from 1.4 billionpounds a year ago, above the average forecast of 1.3 billionpounds from analysts polled by the company.
Market volatility caused by uncertainty over interest ratesand Brexit helped to boost trading income in the investment bankby 40 percent versus a year ago, driven by stronger returns from bonds, commodities and currencies trading in particular.
The corporate and investment bank's trading division postedincome of 1.4 billion pounds for the quarter, up from 1 billionin the same period a year ago.
Barclays also benefited from earning the majority of itsinvestment banking revenues in the United States, since thedollar has appreciated in value against the British pound in theaftermath of Britain's vote to leave the European Union.
Barclays shares were up nearly 1.5 percent by 0847 GMT, thestrongest performer in the benchmark FTSE 100 index.
CAPITAL CONCERNS
Barclays' common equity tier one capital ratio was unchangedat 11.6 percent, a source of concern for investors and analystswho point to stronger capital positions among the lender'speers.
"The bank still isn't out of a capital problem," ChirantanBarua of Bernstein said in a note published after the earnings.
But Barclays said it was on track to close its non-core unitin 2017, which houses assets earmarked for disposal and whichhas acted as a drag on its capital position as the bank sellsthose unwanted assets.
Completing the sale of its stake in Barclays Africa is expected to help the bank to reach a core capital ratiotarget of 12.5 percent but the bank offered no detailed updateon progress since selling 12 percent of its holding in BarclaysAfrica in May.
Barclays' results were also marred by a 42 percent spike incredit impairment charges, which the bank attributed to a changein the way it models credit card risk in the U.S. and Britain.
It also booked a fresh 600 million pound charge formis-selling payment protection insurance (PPI). The scandal hascollectively cost major British banks more than 30 billionpounds to cover victims' claims.($1 = 0.8183 pounds)
(Additional reporting by Andrew MacAskill, editing by SineadCruise and Jane Merriman)
