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* Equity trading revenue graphic: http://tmsnrt.rs/2aT843C
* U.S.-European gap widens again
* Only JP Morgan sees revenue rise
By Anjuli Davies and Jamie McGeever
LONDON, Aug 5 (Reuters) - Stock markets may be nudging theirhighest ever levels, but that's scant consolation for many ofthe world's big investment banks, where revenues from equitytrading, an area they have invested in heavily, fell heavily inthe second quarter.
Caution ahead of Britain's European Union referendum,tighter regulation, low trading volumes and a particularlystrong second quarter the year before depressed revenue atalmost all major investment banks.
European names were the hardest hit, with HSBC, thecontinent's largest lender, seeing its revenue slide more than50 percent from the same period last year.
Goldman Sachs saw revenue decline by 12 percent, theworst performer of the top five U.S. banks. JP Morgan was the only one of 11 institutions on either side of theAtlantic whose earnings increased.
Equity trading revenue graphic: http://tmsnrt.rs/2aT843C
The drop is a blow to investment banks since equitiestrading is seen as one of their few potential growth areas givenit faces fewer constraints under tough new capital rules thanother market businesses such as fixed income.
In March, Reuters reported that Deutsche Bank, a traditionalbond trading powerhouse, was hiring about 100 people to boostits equities trading operations, seeking to recover ground in anarea seen as vital to its new strategy.
Until now, that strategy was making sense with data fromresearch firm Coalition showing that while industry-wide bondtrading revenue shrank 36 percent from 2010 to 2015,stock-trading revenue rose 23 percent.
But with more banks focusing on this relatively low-marginbusiness, their ability to earn large profits in a crowdedmarket place is dwindling.
"Commission fees are getting squeezed and banks won't beable to earn as much as they did in the past," said Neil Wilson,markets analyst at ETX Capital.
Regional factors played a part too, with Barclays'withdrawal from Asian equities, for example, having an impact onits trading revenue.
There was also a huge spike in trading volumes in Hong Kongand Chinese stocks in the first half of 2015 ahead of a suddenslide in the markets later that year and a tail-off in activity.
Credit Suisse saw Asia Pacific equity sales and tradingrevenue drop 39 percent year-on-year.
Reuters' latest monthly asset allocation poll showed thatglobal investors' equity holdings were at the lowest in at leastfive years. Investors have pulled $139 billion from globalequity funds so far this year, according to Bank of AmericaMerrill Lynch.
"Q2 was very dull, while Q2 last year was very, very good. Volumes were low and banks were very cautious. No one was divingin," said Chris Wheeler, banking analyst at Atlantic Securities.
Wheeler argues all is not lost for banks, with equitytrading still a potentially lucrative, less capital intensivebusiness once volumes pick-up.
"I don't think this is a collapse. It's had a fabulous runthrough the last few years, but just couldn't keep that paceup," he said.
(Reporting by Jamie McGeever and Anjuli Davies; Graphic byVikram Subhedar; Editing by Mark Potter)
