Britain's top two banks, HSBC and Barclays , signaled bad debts may be past their peak, with HSBC declaring on Tuesday the first improvement for three years in losses on U.S. consumer credit.

Strong investment banking underpinned profits for both banks, although Barclays shares dipped on concern its unit will be unable to sustain its growth and costs are rising.

Losses on bad debts have soared for banks around the world this year as unemployment rises and economies slow, replacing writedowns on toxic assets as the main worry, and few banks have yet voiced confidence they are through the worst.

HSBC Holdings Plc <0005.HK> Chief Executive Michael Geoghegan said the biggest jolt has now passed through the global economy and predicted a two-speed recovery, driven by emerging markets.

We're quietly confident but we have to be careful (about) where the world economy is going, he told reporters.

Barclays Plc reported a third-quarter pretax profit of 1.56 billion pounds ($2.6 billion), down from 2.8 billion a year ago, largely due to losses on the value of its own debt and other one-off items. Excluding those, profit in the first nine months of the year more than doubled to 4.4 billion.

HSBC, Europe's biggest bank, said underlying third-quarter profits were significantly ahead of a year ago, though it gave no figures in its trading statement.

It was boosted by an improvement at its troubled U.S. consumer finance business, which it is running down. Bad debts there dipped to about $3 billion from $3.4 billion in the second quarter, their first fall since the start of 2006.

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CHARGES FALL

Barclays said it expected impairments for the full year to be near 9 billion pounds, the bottom end of its previously indicated range. Its impairment charges and other provisions reached 1.4 billion pounds in the third quarter, down from 1.8 billion in the previous three months.

By 1200 GMT Barclays shares were down 3.8 percent at 330 pence, while HSBC shares added 4.4 percent to 722.5p, after hitting their highest in just over a year. The DJ Stoxx Europe bank index <.SX7P> was up 0.4 percent.

Barclays shares have done fantastically well in the last year, but there's nothing in these numbers to make you say 'this is going to push it on from here', said Colin Morton at Rensberg Fund Management. He owns both HSBC and Barclays shares.

For all banks the business environment is going to be much more difficult and returns are going to be scrutinized incredibly closely. Regulators and the government are going to be all over them, he said.

Both HSBC and Barclays are emerging as relative winners from the credit crisis and have avoided taking direct government cash, unlike rivals including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc .

As retail banking profits continue to bear the scars of high bad debts, both banks have been underpinned by strong investment banking operations -- areas which have generated high but increasingly controversial bonus payments to top performers.

BONUS GUIDELINES

Both banks said they would adhere to guidelines agreed by world leaders in September, but would not decide payouts until January.

Profits at Barclays Capital, the investment bank arm, reached 1.4 billion pounds in the nine months, or 2.7 billion excluding a charge on its own debt.

It is reaping the benefit from last year's purchase of the U.S. operations of bankrupt Lehman Brothers and the build-up of its equities and M&A advisory business in Europe and Asia.

HSBC, which decided three years ago not to take on Wall Street's big investment banks and shifted to an emerging markets-led, financing-focused strategy, said its investment bank revenue slowed from a buoyant first half but were still well ahead of the year-ago level.

Barclays and HSBC join a batch of rivals reporting strong third-quarter results as capital markets and trading activity have remained lively, including U.S. rivals Goldman Sachs and JPMorgan along with Europe's Credit Suisse and BNP Paribas .

Both said they would consider acquisitions to take advantage of rivals retreating or being forced to sell assets.

HSBC's Geoghegan said he would consider buying UK bank assets, such as those that could be sold by RBS or Lloyds, but was worried they may only be sold to new entrants.

I would hope we have the right to bid for portfolios if they become available, because we have demonstrated that we do run a bank in a conservative and proper manner, he said.

Barclays Finance Director Chris Lucas said the bank would look at acquisitions where it already has a presence, notably in Italy, Spain or Portugal.

(Editing by David Holmes)

($1=.6002 Pound)

United kingdom Investment Barclays HSBC