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UPDATE 3-StanChart lifts annual profit outlook, sets new $1 bln share buyback

(Adds context in paragraphs 5-6 and 12-13, analyst comment in paragraph 7 and share price reaction in paragraph 8)

By Selena Li and Lawrence White

HONG KONG, July 28 (Reuters) - Standard Chartered PLC upgraded its annual profit forecast on Friday and set a new $1 billion share buyback after a strong first-half performance, as rising rates and a record financial markets business propelled the lender's margins.

StanChart, which earns most of its revenue in Asia, said statutory pretax profit for the first six months of the year surged 20% to $3.32 billion, beating the $3.18 billion average of 16 analyst estimates compiled by the bank.

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The lender upgraded its guidance for income growth in 2023 to a 12%-14% range from 10% previously.

"We are mindful of the external macroeconomic headwinds and recent challenges in the banking sector; however, our balance sheet is robust, and we have the right strategy, business model and ambition to deliver our targets," CEO Bill Winters said in a statement.

StanChart's robust results showed how global market conditions are playing to the emerging markets-focused lender's strengths.

Rising interest rates are lifting lending income at its transaction banking business, which handles cash and payments for big companies, while its focus on trading over dealmaking in investment banking helps it avoid a slump in corporate mergers and fundraising.

Analysts at Jefferies hailed the set of numbers which exceeded expectations in most areas, with revenues beating the consensus forecasts and second quarter credit costs from loan losses coming in lower than expected at $146 million versus estimates of $260 million.

Hong Kong shares of StanChart pared earlier losses in afternoon trading on Friday after the results, but were still down 0.3% and trailed a 1% gain in the broader market.

The bank said income growth outpaced increases in costs, despite inflation pushing up the latter, driving a 3 percentage point improvement to its cost-income ratio to 61% for the first half.

London-headquartered StanChart's transaction banking income shot up by 92% to $2.86 billion, with cash management income up 166%, benefiting from a favorable interest rate environment.

Its financial markets business delivered a record $2.8 billion in income in the first half, a 4% increase from an already strong period a year ago on the back of energy price swings.

That contrasted with the prolonged slump in income at more deal-focused U.S. and European rivals.

U.S. banking firms such as Goldman Sachs and Citigroup earlier this month reported lacklustre results for investment banking, while European rival Deutsche Bank said on Wednesday revenue for the business would now fall this year instead of staying flat as deal activity remains sluggish. (Reporting by Selena Li and Lawrence White; Editing by Muralikumar Anantharaman)