By Noele Illien and Oliver Hirt

ZURICH (Reuters) -UBS Group embarked on a sweeping plan to cut more than $10 billion in costs, saying on Thursday it will axe 3,000 jobs in Switzerland alone after it took over its stricken rival Credit Suisse.

The plan to cut roughly one in 12 Swiss jobs gives a glimpse of the scale of shake-up at the newly forged banking giant, as it grapples with the task of swallowing a competitor that unravelled after panicked customers withdrew tens of billions.

The initial round of job cuts follows a decision by the globe's biggest wealth manager to absorb Credit Suisse's local arm - a solid profit-maker that last year was the only Credit Suisse division in the black - rather than spin it off as a standalone unit, which UBS had also considered.

"Our analysis clearly shows that a full integration is the best outcome for UBS ... and the Swiss economy," Chief Executive Sergio Ermotti said.

He wrote in a memo to staff that 3,000 Swiss jobs would go, while more people would leave of their own accord, for example, through retirement.

The cuts will be painful for Switzerland's financial centre of Zurich, where the banks dominate the landscape. The Swiss Bank Employees Association said that the two banks' 37,000 local staff should be treated fairly and equally.

SHOTGUN MARRIAGE

The prediction of over $10 billion in cost-savings by end 2026 compares with an earlier estimate of $8 billion by 2027. Most savings are set to come from reducing headcount and analysts had estimated between 30,000 and 35,000 jobs could go globally.

UBS shares were up 5% in morning trade, hitting highs not seen since 2008, after the cuts were announced alongside the first financial results UBS published since the takeover, hastily arranged over one March weekend.

Analysts broadly welcomed the announcement, although JP Morgan said that "more details" were needed. "The group remains a construction site," said Deutsche Bank analysts.

Those results also showed the difficulties UBS has had in persuading Credit Suisses's wealthy customers to stay.

Keeping them is seen as key if UBS is to successfully pull off the Herculean deal.

Credit Suisse reported net asset outflows of 39 billion Swiss francs ($44.4 billion) in the second quarter, underscoring that the rescue has failed to stem the loss of confidence.

But UBS said the outflows took place at a slower pace compared to previous quarters and turned positive in June.

UBS's global wealth management reported net new money of $16 billion, its highest for the second quarter in over a decade.

The shotgun marriage to its fallen rival at the behest of Swiss authorities - the first-ever merger of two global systemically important banks - has created both opportunities and risks for UBS.

On one hand, analysts note that UBS acquired Credit Suisse for a song - just 3 billion Swiss francs - while gaining a large asset base, good client relationships and talented employees.

At the same time, analysts warn that the complexity and the hasty nature of the deal brings significant execution risks as UBS must aggressively cut jobs, shrink Credit Suisse's investment banking operations and manage outflows as clients seek to spread risk.

UBS booked net profit of $29 billion for the second quarter. Group-wide UBS results include just one month of Credit Suisse earnings as the deal only closed in June.

The bumper profit is due to a huge one-off gain that reflects how the acquisition costs were far below Credit Suisse's value. It was somewhat under a consensus estimate of $33.45 billion from a poll conducted by the bank.

($1 = 0.8784 Swiss francs)

(Additional reporting by Brenna Hughes Neghaiwi in Zurich; Writing by John O'Donnell and Noele Illien; Editing by Edwina Gibbs and Tomasz Janowski)