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* Q2 EPS C$0.26 vs Street view C$0.20
* Cuts losses associated with weak markets
* Shares rise 4.6 pct at C$13.08 (Adds CEO comments, updates shares to close)
By Cameron French
TORONTO, Aug 11 (Reuters) - Manulife Financial Corp (MFC.TO) rebounded more strongly than expected in the second quarter, pushing its shares higher on Thursday despite lingering concerns about the impact of market turbulence on Canada's biggest life insurer.
The company, which owns U.S. insurer John Hancock, posted a profit of C$490 million ($495 million) in the quarter, as aggressive hedging reduced its exposure to volatile stock and bond markets. A year ago, Manulife lost C$2.4 billion.
The insurer's shares rose 4.6 percent to C$13.08, a reprieve for shareholders who have watched the stock plunge 20 percent since the equity selloff began on July 22.
"The harm to earnings from market sensitivities was significantly reduced from a year ago, heralding early success of its aggressive hedging program," Barclays Capital analyst John Aiken said in a note.
Weak equity markets and low bond yields -- which force the insurer to boost reserves to assure it can pay its future investment and insurance policy obligations -- stripped a total C$439 million from the bottom line.
But that was much less than a markets-related charge of more than C$3 billion a year earlier, before Manulife embarked on a hedging program to reduce its markets sensitivity.
On a per-share basis, it earned 26 Canadian cents, topping analysts' expectations 20 Canadian cents.
"I think the underlying core performance was pretty good," said Craig Fehr, an analyst at Edward Jones in St. Louis, Missouri.
"It's indicative of what Manulife has being trying to do... and that is de-risk, reduce sensitivity, focus on the core business lines that have opportunity for steadier growth."
Manulife, which operates in Canada, the United States and Asia, said its hedging program also should reduce the effect of volatile markets in the third quarter to date.
That said, analysts expect the third quarter to be a rough one for the insurer. Global stock markets have tumbled and the U.S. Federal Reserve has pledged to keep interest rates low, a promise that's likely to keep a lid on bond yields.
RBC analyst Andre-Philippe Hardy said he expects the company could lose between 70 and 90 Canadian cents a share in the third quarter, although he suggested Manulife's regulatory capital position and reduced market sensitivity should help put a floor under its share price.
Also to weigh on those results will be a charge of as much as C$700 million for changes to U.S. mortality assumptions, as part of an annual review of actuarial assumptions.
Manulife Chief Executive Don Guloien said on a conference call the market's reaction to the U.S. economic situation was a "gross overreaction", and said that while there's reason to be concerned about Europe's financial sector, it should have little direct negative impact on Manulife.
"Our exposure to those issues is actually rather trivial relative to our size. Very small amounts," he said.
He said the situation in Europe could eventually force European financials to sell off subsidiaries, possibly in areas Manulife is looking to expand into.
"I think Europe's going to go on sale. It's one of the reasons why I'm not anxious to spend anything right now ... to get into a position to take advantage of the opportunities that present themselves down the road," he said.
$1=$0.99 Canadian Reporting by Cameron French; editing by Rob Wilson