Merrill Lynch & Co., the No. 1 U.S. broker, on Tuesday warned that its second-quarter earnings per share would come in as much as 37 percent below analysts' expectations due to weak stock and debt trading operations.

New York-based Merrill said results would be hurt by reduced trading volumes, lower market volatility and the impact of decimalization on trading spreads in the Nasdaq.

Debt trading revenues will be lower than first quarter levels, and revenues from private client and investment management divisions would also sag, Merrill said.

The broker forecast revenues of $5.44 billion for the period, down about 15 percent from $6.4 billion last quarter.

Merrill also said the past four weeks have been the weakest of the quarter and added that the outlook for third-quarter revenues remains weak. The firm said it is cutting costs across all of its businesses in a bid to offset the softness.

``While we are disappointed with the quarter's results to date, they are set against the backdrop of very difficult market conditions, particularly in our secondary equity business,'' David Komansky, Merrill's chairman and chief executive, said in a statement.

The profit warning follows lower quarterly operating results from Merrill competitors Goldman Sachs Group Inc. and Morgan Stanley, although those firms reported strength in fixed income operations in marked contrast to Merrill. Another competitor, Lehman Bros. Holdings Inc., posted improved quarterly profits thanks to strong bond trading and fees from debt offerings.

Merrill, whose client assets total about $1.6 trillion, said it expects second-quarter profits to come in between 52 cents and 57 cents per share, down from first-quarter earnings of 87 cents per share.

Analysts had been expecting the brokerage to earn between 78 cents and 87 cents per share, with a consensus expectation of 82 cents per share, according to research firm Thomson Financial/First Call.

Merrill shares fell to $60.75 in pre-market trading on Instinet, about 9 percent below their closing price of $66.45 on the New York Stock Exchange Monday. The stock has a 52-week high of $80 and a 52-week low of $50.54.