By Philip Blenkinsop

BRUSSELS (Reuters) - Belgian-French financial services group Dexia (DEXI.BR: Quote, Profile, Research)(DEXI.PA: Quote, Profile, Research) reported a 14.5 percent drop in first-quarter net profit on Wednesday, below market expectations, hit by U.S. mortgage-related losses.

Dexia, one of the world's largest municipal lenders, said underlying net profit fell to 539 million euros ($833.2 million) from 630 million euros a year earlier. The average forecast in a Reuters poll of 16 analysts was 582 million euros.

Dexia shares were trading down 2.7 percent at 16.44 euros at 0750 GMT, having hit a two-month low of 16.20 euros, compared with a 0.3 percent rise of the DJ Stoxx European banks index .

Analysts said the group's public finance and retail banking operations had appeared to perform well, but that writedowns and related charges were higher than expected.

Dexia said it had taken a 128 million euro after-tax charge on U.S. mortgage bonds insured by its U.S. bond insurance unit FSA and an additional 216 million euros for mark-to-market adjustments of FSA's credit default swaps.

The former hit the underlying profit. The two combined contributed to a 60 percent slump in reported net profit to 289 million euros, again below market expectations of 337 million.

Dexia said it wrote down 5 billion euros, but said that this negative did not reflect future losses for its portfolio focused on long-duration bonds. During April, spread tightening led to an improvement of 700 million euros.

Dexia's charges compare with 380 million euros reported by Dutch-Belgian rival Fortis (FOR.AS: Quote, Profile, Research)(FOR.BR: Quote, Profile, Research) on Tuesday and are seen as higher than for KBC (KBC.BR: Quote, Profile, Research), which reports on Thursday.