UPDATE 2-UK Prudential's sales dip, sees some recovery in Asia

* Pru's Q3 sales fall 9 percent, less than expected

* Asian sales climb, excluding Taiwan sale impact

* Says becoming "progressively more optimistic" on Asia

* Shares fall 4.6 percent, lagging insurance sector

LONDON, Oct 28 - Britain's largest insurer Prudential reported a better-than-expected 9 percent drop in third-quarter sales, helped by the United States and its key Asian unit, where it flagged encouraging signs of recovery.

Total group sales at the life insurer fell to 700 million pounds ($1.15 billion) in the three months to the end of September, ahead of consensus forecasts for a drop to 653 million pounds, according to analysts polled by the company.

"The dislocation of life insurance markets is leading to very high profitability, low payback periods and high (rates of return) in the United States in particular and in Asia. So the strong growth seen in the U.S. and Asia means Prudential is generating high levels of business at extremely attractive returns," analyst Trevor Moss at MF Global said.

"The numbers in the U.S. and Asia were substantially better than the consensus. They have outperformed in the areas with the highest margin and that should be considered positively."

But Prudential's strong sales numbers were not enough to offset a weaker market, as analysts have long priced in growth in Asia and little detail was given on profitability.

Shares in the firm were trading down 4.6 percent at 582.2 pence by 1018 GMT, compared to a 1.5 percent drop in the FTSE and a 2.25 percent decline in the European insurance sector.

Prudential's Asian sales -- excluding the impact of the Taiwan business sold earlier in the year -- rose 4 percent to 293 million pounds, and the group said it was seeing signs of improvement in the region after a year of turbulence.

Asia has been a key driver of Prudential's growth and is seen as a critical indicator of its future performance.

"We are becoming progressively more optimistic about the economic situation in Asia," the insurer said, adding Korea remained a challenge, though its key Indian market and China saw strong performances.

Prudential's U.S. arm, Jackson National Life, saw the group's strongest growth rates, with sales up 66 percent in the third quarter, as rivals in the variable annuity market were left hobbled by the credit crunch, allowing the UK insurer to jump from number 12 player in the market to number 4.

"It is rare in business that you can increase both volumes and margins, and we can do that in the U.S. so we are taking advantage of it," incoming Chief Executive Tidjane Thiam told reporters on a conference call.

UK STILL WEAK

Britain, now the smallest slice of Prudential's business, saw sales drop 22 percent, hit by the absence of a large bulk annuity transaction which lifted numbers a year ago.

Prudential shifted its focus away from its domestic market after a strategic overhaul in 2007, limiting its appetite for capital intensive business.

For the nine-month period, total group insurance sales fell 9 percent to 2.02 billion pounds.

Prudential said there were indications of improvement in the global economy, but said it would be several quarters before a positive trend could be established.

"We believe that the economic environment will remain uncertain for a while," Thiam said.

Prudential said its insurance group directive (IGD) surplus stood at 2.8 billion pounds, down from 3 billion at the mid-year as earnings were offset by interim dividend payments and investment in U.S. new business.