Switzerland's largest bank, UBS, took some of the fear out of a sector worried about weak earnings yesterday, sending its shares soaring with news of a smaller-than-expected drop in second-quarter profits.

UBS, also the world's ninth-largest bank, reported a net profit for the three months of 1.385 billion Swiss francs (€0.193 billion).

Weakness from slow stock markets was offset by strength in fixed-income and wealth management, and a tight rein on costs.

Analysts had expected net profits to have dropped by as much as 40 per cent on a year ago. Excluding goodwill and some one-off factors, profits fell 26 per cent and on an unadjusted basis net profits fell 33 per cent.

UBS's shares ended up 6.9 percent on the day at 79.45.

Shares in UBS's smaller competitor Credit Suisse Group, which will report second-quarter earnings on August 29th, also rose 4.5 per cent to SFr292.

Mr Luqman Arnold, president of UBS's executive board, expected profits for the full year to be lower than last year but said: "I think we are just trying to do our best in a difficult environment and... get that balance between the discipline and the opportunity."

As expected, UBS Capital, the private equity unit, recorded a pre-tax loss of 351 million Swiss francs.

But offsetting that, the group reported strong underwriting, portfolio management and investment fund fees, bringing fee and commission revenue to a record SFr5.38 billion despite weakness in equity markets.