MEXICO CITY, Oct 26 (Reuters) -

Mexican bottler Arca Continental said on Thursday its third-quarter net profit rose 7% as it sold more water and soft drinks than expected in its home market and widened its U.S. profit margin.

The net profit of 4.54 billion Mexican pesos ($260 million) was slightly less than the 4.62 billion pesos analysts polled by LSEG had estimated, but Arca's thicker core margins beat J.P. Morgan's forecast.

"The highlight of this quarter is once again the strong performance of the U.S. operations," J.P. Morgan analysts said in a note. Mexican volumes were "the main surprise" and traders should react positively to a 2.22-peso extraordinary dividend per share, they added.

Net sales rose 2% to 56.91 billion pesos, surpassing LSEG's 56.22 billion estimate. The increase would have been 14% if not for the Mexican peso's 5% increase against the dollar from July to September. The stronger peso diluted overseas earnings of Mexican companies, bringing down South American sales around 5%.

Beverages and water drove sales volumes up over 7%, helping core earnings rise nearly 8% to 11.51 billion pesos.

Arca, Latin America's No. 2 Coca-Cola bottler after Coca-Cola FEMSA, this year hiked prices across markets to help offset its devalued foreign earnings and higher raw material costs.

In a statement, CEO Arturo Gutierrez said Arca would look to end the year on a strong note by focusing on "capturing new opportunities with our broad product portfolio, strengthening our execution capabilities and quickly adopting our digital tools."

Arca shares were up around 2% shortly before midday.

($1 = 17.4279 Mexican pesos at end-September) (Reporting by Noe Torres and Sarah Morland; Writing by Valentine Hilaire; Editing by Varun H K and Richard Chang)