July-September operating profit came in at 221 billion won ($200.3 million) from a 32 billion won loss a year ago, above a consensus forecast of 172 billion won by 13 analysts surveyed by Reuters. The result was down on a profit of 349 billion won in the previous quarter.

LG has suffered in recent years along with handset rivals such as Nokia and HTC as consumers have swarmed to Apple's iPhone and Samsung's Galaxy range in the lucrative smartphone market.

However, its handset business posted a profit of 20.5 billion won, recovering from a loss of 58.9 billion won in the previous quarter. The result marks a sharp improvement from a year ago when a 140 billion won handset loss wiped out profits from selling TVs, home appliances and air conditioners, and forced the group to sell new shares to raise funds.

The South Korean firm hopes its latest phones, such as Optimus G and Optimus Vu II packed with powerful hardware and software features, will help it gain a foothold in the high-end smartphone market.

Profit from the TV division, which competes with larger rival Samsung and Japan's Sony Corp and Sharp Corp came in flat at 88.6 billion won, after growth more than doubled in the first half of this year.

Earnings were reduced by an increase in spending on marketing as the company sought to clear inventory amid a weak global economy and stiff competition.

Shares in LG, valued at over $11 billion, rose 2 percent after the earnings announcement, versus a 0.4 percent drop in the wider market.

The stock climbed 26 percent over the past three months, buoyed by expectations for improvement in its handset business. The KOSPI gained 7 percent during the same period.

(Reporting by Miyoung Kim; Editing by Richard Pullin)

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