By Tom Sims and Frank Siebelt

FRANKFURT (Reuters) -Commerzbank, fending off a possible takeover by Italy's UniCredit, said on Friday that net profit rose nearly 12% in the first quarter, beating expectations despite strong headwinds for the German economy.

The earnings set the stage for an annual shareholder meeting next week when Commerzbank management will seek investor backing for a continued standalone strategy.

Commerzbank's results were helped by stronger than expected interest and commission income, and by lower than expected provisions for bad loans.

The lender posted net profit of 834 million euros ($936 million) in the quarter, above a consensus forecast of 698 million euros in a poll published by Commerzbank. Net profit stood at 747 million euros in the prior-year period.

"We achieved the highest quarterly profit since 2011, demonstrating that we can grow even in economically challenging times," Commerzbank CEO Bettina Orlopp said in a statement.

Shares were up 2% in early trade.

UniCredit, with a stake of nearly 10%, is Commerzbank's second-largest shareholder after the German government. It began a push for a potential pan-European bank merger last year, leaving Germany's corporate and political establishment shocked.

The interest swiftly sparked concern among employees as well as Commerzbank management and top German government officials.

HEADWINDS

UniCredit CEO Andrea Orcel's pursuit of Commerzbank has become a test of Germany's resolve to fend off foreign suitors and prevent its financial centre in Frankfurt from losing one of the few remaining big commercial banks.

The German economy has been stagnating, but bankers and executives hope that a spending push by newly-installed Chancellor Friedrich Merz will help support a revival.

Commerzbank warned in a presentation on Friday that increased U.S. tariffs "are making it more difficult for German companies to access their most important export market".

The nation's central banker has warned that Germany faces a possible slight recession in 2025, which could weigh on banks' profit and lead to loan defaults by corporate clients.

Earlier this week, Germany's financial regulator BaFin said uncertainty would remain high.

Orcel has said he would wait until a new German government was in place before further action. He said the bank may need to wait until 2027 to make a final decision.

Last month, UniCredit secured German antitrust authorities' approval for a stake of just under 30% of Commerzbank. It followed a similar green light by the European Central Bank earlier this year.

($1 = 0.8908 euros)

(Reporting by Tom Sims and Frank SiebeltEditing by Ludwig Burger and Rachna Uppal)