HONG KONG/LONDON, Oct 28 (Reuters) - HSBC Holdings reported a 14% decline in third-quarter pretax profit on Tuesday, hurt by a $1.1 billion charge after losing part of an appeal in a long-running lawsuit tied to Bernard Madoff's Ponzi scheme, history's biggest-ever such fraud.

But the bank also upgraded its income forecast for the year, reflecting optimism about policy rates in key markets such as Hong Kong and Britain, saying it now expects to make $43 billion in net interest income in 2025, up from a forecast of around $42 billion as of June.

HSBC shares gained 3.2% in Hong Kong, and rose 1.2% in US overnight trading.

"The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters," Chief Executive Georges Elhedery said in a statement.

HSBC posted a pretax profit of $7.3 billion for the third quarter. Before the surprise news of the provision on Monday, expectations were for a pretax profit of $7.66 billion, according to a consensus estimate from analysts compiled by the bank.

In addition to the Madoff provision, the bank also logged an additional $300 million in legal charges relating to certain historical trading activities in HSBC Bank plc.