JPMorgan Chase & Co reported a greater-than-expected 47 percent increase in quarterly earnings and struck an upbeat tone that lifted the shares of major U.S. banks reporting next week.

JPMorgan executives said loan demand and trading profit could grow this year, boosting investor optimism that revenue for other major banks will recover.

The bank's shares rose 2.2 percent to $45.42, their highest since April, and they were one of the biggest percentage gainers on the Dow Jones industrial average an hour before the close of the market.

Profit and revenue were stronger than analysts had expected, even though the bank boosted earnings by 30 cents a share by releasing $2 billion of reserves previously set aside to cover credit card losses.

Wall Street broadly interpreted the results as indicating underlying strength, but some critics questioned whether the release of reserves distracted investors from the still-difficult economic circumstances weighing on the bank's main consumer business.

JPMorgan is also still wrestling with the aftermath of the mortgage crisis and put aside another $1.5 billion to cover legal settlements mainly linked to U.S. home loan foreclosures.

Chief Executive Jamie Dimon set a positive tone on a call with analysts. JPMorgan could start to increase its dividend, which the bank trimmed to an annual 20 cents during the crisis, to about 75 cents to $1 a year once regulators give the go-ahead, likely at the end of March, he said.

LOANS

JPMorgan, the second-largest U.S. bank by assets, increased its loan book by $2.4 billion in the fourth quarter, a rise of 0.35 percent from the third quarter. Economists are scrutinizing banks' loan books for indications of growth, which would suggest broader economic improvement.

Like other banks, JPMorgan said throughout last year that it was seeing patchy pick-up in loan demand, mainly from middle-market and small businesses.

Dimon told analysts that demand for credit appeared to be strengthening this year. Our early indicators are that we will continue to see loan growth this year, he said.

Dimon also shrugged off recent decreases in trading volume across Wall Street, especially in fixed-income, which has been a key engine of Wall Street profits for the last decade.

JPMorgan's fixed income trading revenue fell 8 percent from the third quarter, but Dimon said that 2011 could be good for trading.

So far this year, (trading has) started off pretty good, Dimon said, adding that sluggish revenue in the business is not a long-term problem for Wall Street.

The positive outlook for trading helped lift shares of Goldman Sachs and Morgan Stanley 2.4 percent and 1.9 percent, respectively. Goldman reports results on Wednesday and Morgan Stanley on Thursday.

Similarly, with JPMorgan reporting that its credit card business had improved, shares of credit card companies American Express and Capital One Financial jumped 3 percent and 3.5 percent. Shares of Bank of America, which also has a large credit card business and is due to report earnings on January 21, rose 3.4 percent.

JPMorgan had fewer bad loans across all of its businesses, with the result that it released just over $2 billion in reserves, equivalent to 34 cents a share and more than double the expected release, analysts at Morgan Stanley wrote in a report.

The loan-loss reserves are something that bugs me, said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor. I would love to see a bank hit their numbers without taking from loan-loss reserves for once, he added.

THE NUMBERS

Fourth-quarter profit increased to $4.8 billion, or $1.12 a share, from $3.3 billion, or 74 cents a share, a year earlier. Analysts on average expected $1 a share, according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $26.7 billion on a managed basis, which adjusts for an accounting change for off-balance sheet entities. That was higher than the $24.37 billion expected by analysts. JPMorgan said on Friday it would issue new debt after reporting results.

The investment banking unit reported that revenue rose 26 percent to $6.21 billion in the fourth quarter but that full-year investment banking revenue fell 7 percent from 2009.

The unit's compensation expense per employee, a measure of how investment banking bonuses will fare, dropped 2.7 percent to $369,651.

Some analysts expect Goldman Sachs and Morgan Stanley to post 10 percent to 15 percent declines in fixed income trading revenue, so JPMorgan's results could mean the business is not as bad as feared.

JPMorgan must also deal with changes in financial regulation, including rules that limit its revenue from debit card fees, and with litigation related to soured mortgages it sold to investors and homes it may have improperly foreclosed on.

The New York bank's shares have lagged the overall banking sector over the past 12 months, up 1 pct from January 14, 2010, compared with a 13.4 pct gain in the KBW Banks index Many of the banks with the biggest credit issues have experienced the biggest share rallies over the last year.

The bank's shares are trading just above book value of $43.04 and JPMorgan is generating a return on equity of 11 percent. By one rule of thumb, its shares should be trading at about 1.1 times book value, or $47.34, nearly 4 percent above their current level.

(Additional reporting by Maria Aspan in New York and Dominic Lau in London; Editing by Lisa Von Ahn and Steve Orlofsky)

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