Morgan Stanley (MWD) and Bear Stearns Cos. Inc. (BSC), two of Wall Street's biggest securities firms, on Tuesday said their fourth-quarter profits rose as a flurry of mergers and a year-end stock rally boosted investment banking fees.

Yet shares of both companies, which handily beat their estimates, fell in morning trade. Analysts said Morgan Stanley revenue growth fell short, dragged by ongoing woes in its fixed income trading. Bear Stearns stock slipped after posting record highs earlier this month.

Morgan Stanley, the largest U.S. securities firm by market value, said net income for the quarter ended Nov. 30 was $1.2 billion, or $1.09 a share, up 18 percent from the year-earlier period.

Meanwhile, Bear Stearns, long dismissed as a bond-trading specialist, continued to put up solid results from a wide range of investment banking activities. The firm's profit rose 22 percent, to $352.6 million, from last year. Net revenue surged 19 percent, to $1.83 billion.

"The businesses that were good when markets were down, like fixed income, remain strong, and not-so-good businesses, such as M&A and investment banking, have returned," said Michael Holland, who runs money manager Holland & Co. "These firms are seeing the fruits of that."

Yet in mid-morning trade, Morgan Stanley shares fell 1 percent to $53.08. Bear Stearns stock, which outperformed its peers by soaring 33 percent this year, fell 1.7 percent to $102.74.

Morgan Stanley net revenue rose just 7 percent, to $5.4 billion, falling short of Wall Street expectations. In particular, the world's leading stock underwriter lost ground in equity transactions while its fixed-income trading business again posted lower revenue.

"It was generally disappointing," said analyst Jeffrey Harte of Sandler, O'Neill & Partners, who said bottom line numbers were helped by Morgan Stanley booking lower-than-expected compensation expenses in the quarter.

"As people dig a little more deeply through the numbers, they will find the trading number disappointing for a second consecutive quarter," Harte said.

Like their rivals last week, New York-based Morgan Stanley and Bear Stearns reported a sharp rise in corporate merger advisory fees. Morgan Stanley said industry-wide completed merger and acquisition activity rose 47 percent from last year.

Morgan Stanley advised Sears, Roebuck & Co. (S) in its recently announced merger with Kmart Holding Corp. (KMRT), while Bear Stearns advised Verizon Wireless Inc. (VZ) in its deal to acquire NextWave Telecom Inc..

Wall Street also got a hand from a late-year stock market rally, with industry-wide underwriting volumes up 19 percent. Morgan Stanley said revenue from this business fell 7 percent from a year earlier.

The firm also continued to report problems in several businesses. Fixed-income sales and trading revenue again fell, this time by 9 percent against the year-ago period, hurt by lower interest rate volatility.

Morgan Stanley Chief Financial Officer David Sidwell attributed the decline to seasonal factors and emphasized there were no "blow-ups" in its trading book.

"No one item drove the quarter. We were a little upset we couldn't offset the seasonal slowdown," Sidwell told reporters in a conference call. "As we look into 2005. we're optimistic."

At Bear Stearns, fourth-quarter net revenue in the capital markets division -- which includes institutional equities, fixed income and investment banking -- rose to a record $1.43 billion, up 23 percent from $1.17 billion a year earlier.

While revenue from fixed-income, which has fueled strong results across much of Wall Street in recent years, represented the biggest portion of Bear's capital markets revenue for the quarter, it edged up only 4 percent, to $675.2 million.

Investment banking net revenue, however, surged 38 percent even when $160 million in gains from Bear's private investments are excluded -- reflecting a rise in merger advisory fees.