* Profit boosted by financial market volatility
* Investment banking earnings cycle at a turning point-analysts
* Global M&A deals topped $1 trillion by April 8
By Anjuli Davies and Jamie McGeever
LONDON, April 21 (Reuters) - Trading revenue from theworld's biggest banks showed signs of recovery in the firstquarter as financial market volatility boosted dealing roomprofits after years of attrition.
Though income has been only modestly higher than the sameperiod last year, the numbers have prompted cautious optimismfrom analysts holding out hope for a return to trading returnslast seen before the 2007/08 financial crisis.
Earnings so far from the five leading U.S. banks and CreditSuisse in Europe show that revenue from fixed income,currencies and commodities (FICC) almost doubled from theprevious quarter to $17.1 billion.
Quarter-on-quarter improvement was to be expected, giventhat the first three months of the year are typically thestrongest for investment banks as cash is put to work. However,analysts have been encouraged by FICC numbers that were flatyear on year. FICC accounts for about half investment banks'revenues.
Total revenue at the U.S. quintet and Credit Suisse fromFICC, equities and investment banking fees was $34.98 billion,up a modest 5.9 percent from the same period last year,according to Christopher Wheeler, U.S. banks analyst at AtlanticEquities.
"FICC is showing some signs of life but that is becauserates are back, commodities are back and there's been morevolatility surrounding events like the Swiss franc cap. This ispositive given the dull FICC markets in recent years," Wheelersaid.
The first quarter has been notable for the Swiss NationalBank's removal of its cap on the Swiss franc, the EuropeanCentral Bank's trillion-euro bond-buying quantitative easing(QE) programme, speculation over U.S. interest rates and arollercoaster ride for oil prices.
VOLATILITY BOOST
This has created the type of price fluctuation and marketvolatility that traders thrive on, offsetting the seeminglyperennial downward pressures on trading revenue from tighterregulation, dwindling liquidity and increased automation infinancial market trading.
FICC revenue at the top 10 global banks has risen year onyear only once since 2009 and is down about 50 percent overallsince then, data from industry analytics firm Coalition shows.
In that light, this year's first-quarter stagnation has beengreeted by some as a welcome development.
"With higher volatility and continued support from euro zoneQE, we believe that the investment banking earnings cycle is ata turning point," Citi analysts wrote in a note on Tuesday.
The big winners have been Morgan Stanley and GoldmanSachs, with revenue up 15 percent and 10 percentrespectively year on year, while Citi registered a fall of11 percent, Atlantic Equities analyst Wheeler said.
Credit Suisse, the first big European bank to reportfirst-quarter results on Tuesday, posted FICC revenue up 8percent year on year. Barclays, HSBC and UBS will all report by May 6.
Revenue from other banking activities also showed signs oflife. Equities income was up 23 percent while advisory andcapital markets revenue gained 11 percent, a Reuters analysis ofresults at the big five U.S. banks shows.
Global M&A deals this year had topped $1 trillion by April8, the earliest the threshold has been reached since 2007,according to financial data provider Dealogic.
"Low rates have translated into a surge in mergers and anincrease in currency trading, both big money makers forinvestment banks," BlackRock's Global Chief InvestmentStrategist Russ Koesterich said.
"We see the favourable environment for this sectorcontinuing and would remain overweight in large, globalfinancial firms." (Editing by David Goodman)
Barclays (BARC)
HSBC Holdings (HSBA)
