UPDATE 2-Frontline's Q3 profit sinks, sees buoyant cash

* Q3 EBIT falls 84 percent to $28 mln vs $32 mln forecast

* Says to return to Q4 net profit, shares pare losses

* Says to create substantial cashflow if market recovers

* Scraps purchase options for three VLCCs

(Adds CEO comment, details on dividend prospects; shares)

By Richard Solem

OSLO, Nov 27 (Reuters) - Frontline (FRO.OL), the world's biggest independent oil tanker shipping group, reported an 84 percent fall in third-quarter operating profit on Friday but said it would create substantial free cashflow for dividend payments as the tanker market begins to improve.

"The market in the third quarter was difficult, among the worst ever, but we are out of the tunnel and there's light," Chief Executive Jens Martin Jensen said, after reporting a net loss of $6 million for the quarter.

Frontline shares were up 1.7 percent at 149 crowns by 0924 GMT, when Oslo's main index .OBX was down 0.02 percent.