BNP Paribas , France's biggest listed bank, beat forecasts for first-quarter revenue and earnings, driven by strong retail growth and resilient investment banking that bolstered investor confidence.

BNP's European retail footprint helped offset weaker capital market revenue amid market jitters over euro zone debt levels, Arab world unrest and the Japanese earthquake.

I am still in a cautiously optimistic mood ... I expect this level of sustained activity to continue over the next quarters, chief executive Baudouin Prot told Reuters Insider television on Wednesday.

BNP shares were up 2.6 percent at 0800 GMT, the top gainer on the STOXX Europe 600 bank index <.SX7P> and lifting smaller domestic rivals Credit Agricole and Societe Generale which report results later this month.

French bank stocks have traded at a discount to peers because of worries over the impact of tougher incoming capital requirements and exposure to eurozone debt jitters.

BNP's performance is above expectations across all the operating divisions, said Natixis analyst Alex Koagne, who has a buy rating on the stock.

BNP's quarterly net income rose 14.6 percent to 2.62 billion euros ($3.9 billion), compared with a forecast for 2.25 billion in a Reuters poll. Revenue grew 1.3 percent to 11.7 billion euros, also higher than expected.

Retail banking was buoyed by loan growth across western Europe and appetite for mortgages in France.

Provisions against loan losses tumbled almost a third across the group, helping BNP's investment bank profit better resist a 14.5 percent drop in capital markets revenue.

European peers including Barclays , Credit Suisse and UBS , saw investment banking profit fall 15-30 percent in the first quarter. BNP's unit reported a 5 percent fall in pretax earnings.

BNP, which is relying on its own profit power to meet incoming Basel III capital rules, should see business activity at this level for the coming quarters and significantly lower provisions for 2011 compared with 2010, Prot told Insider.

The group's core Tier 1 capital ratio, a key measure of financial strength, rose to 9.5 percent at end-March, from 8.3 percent a year ago.

GREECE IMPACT LIMITED

Prot said there was still no need for a capital increase to meet tougher incoming rules under Basel III, adding the bank's own financial firepower would be enough.

First-quarter return on equity was 15.1 percent on an annualized basis, which would put BNP on track to hit its target for an annual ROE of 15 percent.

Even a possible debt restructuring by crisis-wracked Greece would only have a limited impact on BNP, Prot said.

We would be impacted ... in a limited, not marginal, but limited way, Prot said, adding BNP's total sovereign exposure to Greece, Ireland and Portugal stood at 6.7 billion euros at end-March.

Unlike smaller French rivals Credit Agricole and Societe Generale , BNP does not own a bank in Greece that would be exposed to broader economic troubles.

However, BNP did see pretax profit virtually wiped out at its emerging-market retail division, hurt by charges on North African unrest and shrinking revenue in Ukraine.

Prot, one of the few bank chiefs to have kept his job through the financial crisis, also said he was confident BNP would pass the fresh batch of European Union bank stress tests this year.

BNP was not considering growing via acquisitions, he said.

Its shares have risen 12 percent this year, underperforming domestic rivals but outperforming the broader STOXX Europe 600 index <.SX7P> as less risk-averse investors return to banks that bore the brunt of euro zone fears.

The bank has a market value of 64 billion euros, behind British lender HSBC and Spanish group Banco Santander .

(Editing by James Regan and Dan Lalor)

($1 = 0.6726 euro)

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