* Q3 cash earnings A$1.5 bln, higher than average of last 2 qtrs

* Lower provisions driving results, lower coverage than peers

* Resumes dividend with A$0.25/shr interim payment

* Economic outlook better today than at end-March - CEO

SYDNEY, Aug 19 (Reuters) - Australia and New Zealand Banking Group Ltd resumed dividend payouts after halting them early this year due to the coronavirus pandemic, and posted a quarter-on-quarter jump in profit on a modest rise in additional provisions for bad loans.

Shares of ANZ, the smallest of the country's "Big Four" lenders, rose 2.6% higher on Wednesday, outperforming the broader market's 0.83% gain as investors welcomed the dividend and its more optimistic outlook on the industry than what its peers have provided.

"On some measure, the economic outlook is better today than it was at the 31 of March ... nonetheless we're prudent and topped up our provisions, we've strengthened our capital ratios again and we've managed to pay a modest dividend to shareholders," CEO Shane Elliott told investors on a call.

ANZ has been selling businesses it considers non-core for the last three years. The Melbourne-based lender sold two further assets during the quarter ended June 30.

It announced an interim dividend of 25 Australian cents per share, compared to 80 cents in the same period last year.

ANZ had deferred its dividend decision in April, after the regulator asked banks to consider freezing payments due to the economic uncertainty, before relaxing the guidance in July.

It booked a A$500 million ($362.20 million) top-up to its provision charge for possible future bad debts during the quarter, partly driven by loans to business customers that had become riskier.

At 1.25% of risk-weighted assets, the coverage appears more modest than that taken by its largest peers. Commonwealth Bank of Australia's cover is 1.44%, Westpac Banking Corp's is 1.53% and National Australia Bank's is 1.28%.

"We expect there is more provision build to come," Credit Suisse told clients in a note.

ANZ bank reported a cash profit from continuing operations of A$1.50 billion for its third quarter ended June 30, higher than the average A$707 million in the last two quarters due to the much lower provisioning. The bank did not give a comparable figure in the same quarter of the previous year. ($1 = 1.3805 Australian dollars) (Reporting by Paulina Duran in Sydney; Additional reporting by Rashmi Ashok and Shriya Ramakrishnan in Bengaluru; Editing by Shounak Dasgupta and Muralikumar Anantharaman)