LONDON (Reuters) - HSBC's profits rose 10 percent last year as buoyant growth in Hong Kong and elsewhere in Asia helped Europe's biggest bank absorb $17.2 billion in bad debts as the US housing crisis deepened.

Profits in Hong Kong rose 42 percent and earnings jumped 70 percent in the rest of Asia, but the bank's North American arm barely scraped a profit as past risky loans to US homeowners now in trouble hit it hard.

The London-headquartered bank reported record pretax profit of $24.2 billion for 2007, up from $22.1 billion in 2006. This was below an average forecast of $24.7 billion from a Reuters Estimates poll of analysts, but results were distorted by some one-off items and did not include a $1.3 billion property gain expected by many analysts.

Underlying profit growth was five percent for the year, which analysts said was in line with forecasts.

The bank's impairment charge jumped $6.7 billion from 2006, or 63 percent. Bad debts had been expected to come in at $15.8 billion, based on the average of forecasts from eight analysts.

By the close of trading in London, HSBC shares were up 3.1 percent at 790 pence, one of the top performing stocks in a weak UK share market.

HSBC owns the bank of Bermuda, which expects to publish its own results in the next few days.

"If ever proof were needed about the benefits of diversification, these numbers from HSBC fall squarely into that category," said Richard Hunter, head of UK Equities at stockbroker Hargreaves Lansdown.

"Its performance in the ever-strengthening markets of China, India and Hong Kong proved a more than ample buffer against its US sub-prime woes."

HSBC said the outlook for 2008 was uncertain and that the US economic slowdown and credit outlook "may well get worse".

It said its conservative balance sheet and international spread left it well positioned and it expects to improve margins and will "continue to invest in building market presence at a time when others with weaker capital positions are constrained".

The bank has said it may sell half its branches in France for $3.2 billion and redeploy proceeds towards emerging markets, and other businesses could follow.