* Caixabank 50 pct profit rise to 403 mln euros
* Bankia 28 pct profit rise to 304 mln euros
* Sabadell 14 pct profit fall to 216 mln euros
* Caixabank's shares up 2 pct, Bankia's flat (Updates share prices)
By Jesús Aguado and Angus Berwick
MADRID, April 28 (Reuters) - Spanish banks outstripped first-quarter profit forecasts on Friday and Caixabank improved its income from loans, a key revenue driver which remains a concern for Bankia.
Caixabank, Bankia and Banco Sabadell all recorded lower bad loan ratios at the end of March and increased fees from the sale of financial products, such as insurance.
A solid economic recovery in Spain and a property rebound has allowed most Spanish lenders to reduce toxic balance sheets faster than peers in Italy, boosting investor confidence as Spanish bank shares trade at close to year-highs.
Caixabank, Spain's third largest lender, posted a near 50 percent rise in profit from a year before in its first results to include Portugal's BPI, which it bought in February to offset falling profitability in its main Spanish market.
Its net interest income (NII), a key measure of earnings on loans minus deposit costs, was 1.15 billion euros ($1.25 billion), up 13 percent from a year ago and 7 percent from the previous three months, bucking the trend of shrinking margins.
"Retail banking activity has fallen but corporate banking is allowing us to compensate for other trends, above all lower interest rates which have affected our mortgage loan book," Caixabank CEO Gonzalo Gortazar told reporters in Barcelona.
Profit at state-owned Bankia rose by 28 percent as the hit to its lending income, which fell both against the previous year and quarter, was outweighed by a jump in trading gains.
Caixabank shares were up 2.3 percent at 1135 GMT having risen 16 percent over the last three months. Bankia and Sabadell shares were flat after both hitting year-highs this week.
Banco Sabadell, Spain's fifth largest bank, also topped forecasts although its profit fell by 14 percent from the year before on higher provisions for bad loans. Its NII shrunk 1 percent from the year before.
Earlier this week, larger peers Banco Santander and BBVA notched up healthy profit gains in what analysts have a called a good quarter for Spanish banks, though they cautioned that problems remain.
"All three Spanish banks have delivered bottom-line beats but helped by large trading results and one-off gains," Jefferies analyst Benjie Creelan-Sandford wrote in a note.
"NII is the key focus and while numbers here were broadly in line, the continued decline in asset yields should be cause for concern for future expectations."
Bankia still has 2 billion euros of unproductive assets on its books, CEO Jose Sevilla told reporters in Madrid, and it expects to reduce them by 20 percent each year.
In March, the Spanish government gave the green light to merger talks between Bankia and fellow nationalized lender Banco Mare Nostrum (BMN), and it plans to privatize both by 2019.
Caixabank's takeover of BPI, Portugal's second largest listed lender, contributed to a 90 basis point drop in its capital ratio, while Bankia's rose to 13.37 percent, the highest among Spain's large banks.
CEO Gortazar said on Friday the bank was not considering any more acquisitions and would continue with its cost cutting plan.
$1 = 0.9200 euros Editing by Alexander Smith and Elaine Hardcastle