* Q3 net profit up 58.2 pct, beats estimates

* Signs of recovery in global markets (Recasts, adds details, background)

BEIJING, Oct 27 (Reuters) – ZTE Corp (0763.HK: Quote, Profile, Research), China’s No.2 telecom gear maker, posted a 58.2 percent profit rise as domestic carriers build new 3G networks, but that $58.5 billion spending spree could start to ease in 2010, weighing on margins.

The company also saw improvement in overseas markets — accounting for almost half of ZTE’s 000063.SZ revenue — which were hurt by slowing investment by foreign telecoms carriers.

“There were signs of recovery in the global communications market,” the company said in a statement, which pointed specifically to emerging economies such as the Asia-Pacific region.

An expanding domestic market, aggressive pricing and generous credit terms from Chinese banks have helped ZTE and larger domestic rival Huawei Technologies [HWT.UL] narrow the market share gap with global leader Ericsson (ERICb.ST: Quote, Profile, Research).

Over the past year, both ZTE and Huawei nearly doubled their share of the global mobile gear market, as Chinese telecommunications carriers rolled out 3G services, said researcher Dell’Oro. [ID:nLQ65026]

Ericsson, which has maintained its 32 percent market share during the global downturn even as rivals such as Alcatel-Lucent (ALUA.PA: Quote, Profile, Research) faltered, posted disappointing earnings last week, sending its shares down 6.9 percent. [ID:nLM420454]

“We will seek to increase our presence in key markets such as Western Europe and North America while reinforcing our position in the 3G market at home,” it said.

3G EXPANSION PEAKS

ZTE said on Tuesday that third-quarter earnings rose to 408.6 million yuan ($60 million) — based on Reuters calculations — compared with a forecast 384 million yuan in a Reuters poll and a year-earlier net profit of 258.3 million yuan.

China is in the middle of a $58.5 billion expansion programme through 2011 to build 3G networks after 3G licences were issued earlier this year.

“While a pickup in overseas demand is positive as it helps ZTE fill the revenue hole created from peaking China telecom industry capital expenditure, this is likely to dilute margins as overseas margins are lower,” said Macquarie Research in a note published before the company’s results were issued.

The company’s share price rose 52 percent in the third quarter, far outpacing the 8.16 percent gain on Hong Kong’s China Enterprises index .HSCE over the same period.

For full statement please click (here) ($=6.83 yuan) (Reporting by Kirby Chien; Editing by Don Durfee and Chris Lewis)

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