Merrill Lynch & Co. (MER), the biggest U.S. brokerage, on Tuesday said second-quarter profit rose 5.6 percent, beating analysts' estimates, as investment banking revenue increased despite tough market conditions.

Revenues at the investment banking unit, which include securities trading, jumped 30 percent to $3.44 billion, the highest level in any quarter in over five years. Total revenue jumped 20 percent to $6.32 billion.

Merrill's net income rose to $1.13 billion, or $1.14 per share, from $1.07 billion, or $1.05 a share, a year earlier, sending its shares up 2.1 percent in early trading.

Analysts expected earnings of $1.08 a share, according to Reuters Estimates.

"They did better in credit trading than a lot of their peers, and investment banking looks good ... They are dealing with the environment as best they can," said David Hendler, an analyst at independent research provider CreditSights.

Merrill Lynch's strength in corporate bond and commodities trading revenue contrasted with Bank of America Corp. (BAC) and Citigroup Inc., (C) which cited weak market environments when they posted lower trading profits on Monday.

Investment and commercial banks have both said that the small gap between short-term and long-term rates, combined with concerns about hedge fund liquidations in May, made trading conditions tough last quarter.

Hedge fund liquidation rumors hit credit instruments, like corporate bonds and credit derivatives, during the quarter, but those areas improved dramatically in June.

The fact that Merrill's quarter included the month of June probably helped the company's trading revenue, said Kent Forkner, senior research analyst at Boston Co. Asset Management, which owns Merrill shares.

Improving conditions in June may have also helped JPMorgan Chase & Co. (JPM), which said on June 1 that its second-quarter trading results may be the weakest in some time, Forkner said.

At Merrill's brokerage unit, revenues rose 7 percent to $2.57 billion. At its asset management unit, revenues advanced 6 percent to $404 million.

Merrill Lynch said in the first quarter it would buy back up to $4 billion of shares this year and boost its dividend by 25 percent, which helped bolster the company's share price.

Merrill stock rose $1.17 to $57.84 on the New York Stock Exchange.

Even after Tuesday's gains, its shares have fallen about 3 percent this year, while the AMEX Securities Broker Dealer Index has risen 10.9 percent.