* Q3 parent operating pft 638 bln won vs 635 bln won yr-ago
* Result ahead of 608 bln won consensus forecast
* China sector weak, but Beijing seeking to stoke demand (Adds restructuring, dividends, 2016 investment forecast)
By Joyce Lee and Jee Heun Kahng
SEOUL, Oct 20 (Reuters) - South Korean steelmaker POSCO turned in its highest quarterly operating profit in more than two years, beating estimates with a 0.5 percent earnings gain as stable input costs cushioned weak steel product prices amid a supply glut.
POSCO, the world's sixth-biggest steelmaker, said on Tuesday third-quarter operating profit edged up to 638 billion won ($566 million) on a parent-only basis, excluding affiliates. That was up from 635 billion won a year earlier, and ahead of a consensus forecast of 608 billion won compiled by Thomson Reuters I/B/E/S.
Fuelled by China's steelmakers, the impact of a global oversupply of steel products has been to drag POSCO's share price to a nine-year low - Monday's closing price of 182,500 won per share was the firm's lowest since July 2005.
Yet the gloom may ease somewhat for POSCO in the fourth quarter. While it said it expect iron ore input prices to remain weak through the end of the year, it also expects the rate of decrease in China's steel demand to drop.
China logged its weakest quarterly growth since 2009 between July and September, but the government has quickened spending on infrastructure projects and eased curbs on the ailing property sector, potentially cutting into the steel supply glut.
At net level, POSCO reported a consolidated third-quarter loss of 658 billion won, partly citing currency moves and the decreased value of raw materials assets it holds in stock.
But it said it is on track to complete a restructuring plan announced last quarter, closing unprofitable local and overseas businesses, and is now considering a strategy of quarterly dividend payouts. If adopted, POSCO would become the first South Korean company to pay out every three months, rather than every half or yearly.
Meantime POSCO expects parent-only capital expenditure investment in 2016 to be slightly more than the 2.4 trillion won forecast for the current year. In 2014, that investment was 3 trillion won.
Shares in POSCO closed 1.6 percent lower in Seoul on Tuesday, before earnings were disclosed, versus a 0.5 percent increase in the broader market. ($1 = 1,127.2200 won) (Editing by Kenneth Maxwell)