"Despite a significant downturn in the markets in late April and May, the second quarter proved a strong one for Lehman Brothers," said Lehman's chief executive, Richard Fuld, in a statement.

Lehman's stock price on Friday morning gained 2 to 91-1/2 on the New York Stock Exchange, while other investment bank shares declined. At mid-afternoon it was up 1-1/8 at 90-5/8. The stock this year has gyrated between a February low of 60-5/8 and a March high of 107-1/2.

Lehman's results beat lowered Wall Street expectations of $2.49 a share, tablulated by market research firm First Call/Thomson Financial. Analysts earlier this month revised downward their profit outlook for investment banks in response to a stock market slump and a slowdown in new stock and debt offerings.

"They (Lehman) managed to hang on to more trading profitability in equity and fixed income than you might have expected," said analyst Guy Moszkowski of investment bank Salomon Smith Barney. This bodes well for Goldman Sachs Group Inc. and Morgan Stanley Dean Witter & Co. , which will report results next week, he added.

Lehman's earnings broke a string of record quarters that culminated in a bumper profit of $541 million, or $3.69 a share, in the first quarter. Most securities firms reported record results that quarter because of a strong stock market and high fees from advising companies on mergers and helping them sell stocks and bonds to investors.

Second quarter net revenues were $1.76 billion, up 21 percent from $1.46 billion a year-ago but off 20 percent from $2.2 billion in the first quarter.Lehman derived a record 49 percent of its revenues from overseas, primarily Europe. The firm, which previously was known as mostly a domestic bond trading house, is benefiting from a merger boom in Europe and has built a strong stocks business there.

"The strength in equities and in our international operations reflects Lehman Brothers' success in diversifying its revenue mix by business and by region," Fuld said.Lehman's European unit is among the firm's most profitable, because it focuses on lucrative businesses such as merger advisory. The unit earned 40 cents pretax for every dollar in revenues in the second quarter, compared with a 31-percent pretax margin firmwide, said Lehman's chief financial officer, David Goldfarb, in an interview.

Lehman's investment bankers generated $471 million in fees in the second quarter, up 8.3 percent from the year-ago period but down 20.6 percent from $593 million in the first quarter. Lehman officials were optimistic about the second half.

"The pipeline looks terrific," Goldfarb said. Lehman expects to earn fees on $270 million worth of merger deals in the second half and $14 billion worth of stock offerings.

Revenues from trading stocks and bonds were $1.08 billion, up from $878 million in the year-ago period but down from $1.34 billion in the first quarter.The recent slump in the Nasdaq stock market is expected to cause other investment banks to report slowing profit growth. Investor appetite for stocks has diminished, hurting Wall Street commissions and fees.

Eight of the 10 lightest trading days on Nasdaq occurred in May, and volumes at the New York Stock Exchange showed a similar trend. Investment banks brought just 70 companies to the market in initial public offerings (IPOs) so far in the second quarter, down some 50 percent from the first quarter. The stock market slump also has decreased the value of equity stakes Wall Street firms hold in newly public and private firms. Lehman booked $220 million in profits from such investments in the first quarter, but a loss of $60 million in the most recent quarter, Moszkowski said. Other investment banks, especially Goldman, may have bigger losses, analysts have said.