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* Says makes good progress in cutting costs
* Investment bank revenues fall 16 percent in quarter
* One analyst sees upgrades to 2014 earnings estimates
* Shares up 3 pct (Adds analyst comment, valuation background, more on action byregulators)
By Steve Slater and Matt Scuffham
LONDON, July 30 (Reuters) - Barclays Plc said itsunderlying profits fell 8 percent in the second quarter as theBritish bank's attempts to crack down on high-risk trading andsubdued market activity took a toll on investment bankingrevenue.
Barclays said it had made good progress in cutting costs andhiving off assets it no longer wants. It has cut 5,000 jobs thisyear, leaving it with fewer staff than at any time since 2007.
Its shares were up 3.2 percent at 226.2 pence by 0745 GMT,the top performing European bank stock. Some analysts said thedrop in investment banking revenue was less severe than theyexpected.
Chief Executive Antony Jenkins has pledged to make Barclaysleaner and more profitable and stamp out wrongdoing, but histurnaround efforts are being dogged by problems from the pastand the weak investment bank revenues.
Barclays said the U.S. Department of Justice had requestedan extension to a non-prosecution agreement (NPA) that was dueto expire last month, to allow it to continue to investigatepossible misconduct in foreign exchange trading. The NPA was putin place after the bank was fined $450 million for the allegedrigging of Libor interest rates, and means if the DOJ finds anywrongdoing in FX activities it could come down harder on thebank.
The bank also set aside a further 900 million pounds tocompensate customers mis-sold loan insurance, taking its totalbill for the scandal to 4.85 billion.
Barclays said adjusted profits in the three months to theend of June fell to 1.7 billion pounds ($2.9 billion) from 1.8billion a year ago. First-half earnings were 3.3 billion, down 7percent on the year but above the average forecast of 3 billionfrom analysts polled by the company, as operating costs fell.
Analysts said the bank had beaten expectations on its costcutting and on losses from bad debts, and reported astronger-than-expected leverage ratio of 3.4 percent, up from 3percent at the start of the year.
Citi analyst Andrew Coombs said he expected to see "lowsingle-digit" earnings upgrades following the results.
"We expect recent negative earnings momentum to reverse inthe second half, which could allow the shares to grind higher,despite ongoing litigation concerns," he said.
FIXED-INCOME DECLINE
Barclays, which last year raised 5.8 billion pounds tobolster its capital and meet tougher regulatory demands, saidits core tier-one capital ratio had risen to 9.9 percent at theend of June compared with 9.1 percent at the end of 2013.
The bank's shares are down about 20 percent this year, thethird worst performer among Europe's top 47 banks, whichare on average up 1 percent. Barclays shares trade at 0.6 timesbook value, well below the average of 1 times for its Europeanpeers, according to Reuters data.
Its valuation is being depressed by the threat of morelitigation costs, weak returns and its still hefty reliance onthe investment bank, which is seen as more volatile than retailand corporate banking.
Revenues fell 16 percent at the investment bank, wherebusiness has been hit by a decline in fixed-income trading andtougher regulation.
Revenue from credit and macro products in the second quarterwas down 17 percent, a steeper drop than at U.S. rivals whichsaw a fall of 9 percent on average.
That was due partly due to a strong British pound, andanalysts said the investment bank's overall performance was inline with expectations, or slightly better. Advisory revenuesjumped 35 percent, outperforming Barclays' competitors.
Jenkins is cutting 7,000 jobs in the investment bank as partof 19,000 job cuts across Barclays in the next three years.
"We are delivering the strategy that we set. We're ahead ofall the targets that we set and as that establishes itself overthe next few quarters, the market will reflect that in the shareprice," Jenkins said. ($1 = 0.5902 British pounds) (Reporting by Steve Slater; editing by Matt Schuffham and TomPfeiffer)
