REFILE-UPDATE 2-RBS tipped back into loss by NatWest Markets, mis-selling hit

(Refiles to fix typographical errors, paragraphs 7-8)

* Incoming CEO Alison Rose starts in role on Nov 1

* Bank makes 900 mln stg provision for mis-selling claims

* Investment bank NatWest Markets makes 193 mln stg loss

By Iain Withers and Sinead Cruise

LONDON, Oct 24 (Reuters) - Royal Bank of Scotland highlighted the challenges facing its new chief executive Alison Rose on Thursday as a weak performance at its investment bank NatWest Markets and yet another mis-selling charge tipped it into a third-quarter loss.

Shares in RBS were down 2.4% at 0820 GMT after the state-backed bank reported an 8 million pound pre-tax loss in the three months to end-September, compared to a 961 million pound profit for the same period last year.

Rose is due to head a new-look management team from next month at RBS, which made a fresh 900 million pound ($1.16 billion) provision to compensate customers who were mis-sold payment protection insurance (PPI) on loans and credit cards.

British banks were stung by a late surge in PPI queries ahead of an August claims deadline, sending the industry's final compensation bill above 43 billion pounds.

"It would be a very brave FD (financial director) who said the line was completely drawn under it," RBS Chief Financial Officer Katie Murray told reporters.

The charge was at the top of a 600-900 million pound range forecast by RBS in September and knocked the bank's core capital ratio by 50 basis points to 15.7%.

Rose will have to tackle its investment banking arm, which posted a loss of 193 million pounds, with total income dropping by 419 million pounds to 150 million pounds compared with a year ago.

Joe Dickerson, analyst at Jefferies, said the performance of NatWest Markets was "deplorable" and Rose would come under pressure to further restructure the overall business

RBS said the unit suffered heavily during August and September, when borrowing costs in U.S. overnight lending markets soared and investors grappled with global recession signals, trade tensions and the threat of a chaotic Brexit.

Murray said she could not rule out further restructuring of the business, but wider cuts would be a decision for Rose.

NEW DIRECTION

Rose, an RBS veteran who will become the first woman to lead one of Britain's big four banks, will outline her new strategy in February.

She inherits a smaller bank that returned to profit and paying a dividend under predecessor Ross McEwan, who will become CEO of National Australia Bank in December.

Big challenges facing Rose include accelerating the return of the majority state-owned bank to private hands and stepping up distributions of excess capital to investors.

Shareholders have called on RBS to radically pare back its investment banking activities to concentrate on higher-returning businesses.

While mortgage lending grew to 8.6 billion pounds in the quarter, up from 6.7 billion pounds three months earlier, RBS blamed intensifying competition for squeezing its net interest margin by 5 basis points to 1.97%.

RBS had in August ditched its profitability and cost targets for next year due and Murray said business borrowers were continuing to delay investment decisions.

The bank posted 213 million pounds of impairments for the quarter, above expectations.

Investor sentiment towards Britain's lenders has recently improved as the chances of a disorderly Brexit have receded, boosting bank share prices including RBS by around 15% for the year to date. ($1 = 0.7743 pounds) (Editing by Alexander Smith)