UPDATE 1-Morgan Stanley posts profit on surging equity trading

(Adds details; premarket stock movement)

Jan 18 (Reuters) - Morgan Stanley reported a fourth-quarter profit on a surge in equity sales and trading and strong margins at its wealth management business, sending its shares up 7 percent before the bell.

The investment bank reported income from continuing operations of $573 million, or 28 cents per share, compared with a loss of $222 million, or 13 cents per share, a year earlier.

Revenue from sales and trading rose 43 percent to nearly $3 billion. Wealth management business grew 8 percent to $3.5 billion.

"Our firm is now poised to reach the returns of which it is capable on behalf of our shareholders," Chief Executive James Gorman said in a statement.

Compensation expense, typically the biggest cost for Wall Street firms, fell 5 percent to $3.6 billion in the fourth quarter from a year earlier.

Rival Goldman Sachs Inc said on Wednesday it cut compensation costs 11 percent in the fourth quarter, helping boost return to shareholders.

(Reporting by Anil D'Silva; Editing by Supriya Kurane)