* H1 net profit A$501 mln vs forecast of A$475 mln
* Shares surge on earnings, Sydney Airport proposal, dividend
* Earnings rise powered by asset management, IPOs
SYDNEY, Nov 1 (Reuters) - Australia's top investment bank Macquarie Group Ltd booked a better-than-expected 39 percent increase in first-half net profit on Friday, helped by an upswing in IPOs and a strong performance from its asset management division.
It also reiterated that full-year net profit would strengthen in 2014, without quantifying the rise, providing that market conditions were no worse than they had been in the year before.
The results contrast with disappointing earnings from other investment banks. Quarterly profit for Barclays slid 26 percent with the bank blaming a slowdown in capital markets while Goldman Sachs Group Inc recently slashed employee compensation costs by 35 percent after revenue weakened.
Macquarie, which has been diversifying away from investment banking into less riskier areas, posted first-half net profit of A$501 million ($474 million), its strongest first half since the first six months of 2009 and beating an average projection of A$475 million.
Macquarie's diversification has paid off with its funds division, which manages assets for institutional and retail investors, posting a 40 percent rise in profit to A$500 million, bolstered by a rise in fees.
Macquarie's shares surged after the results, with investors also keen on the investment bank's proposal to distribute most of its 17 percent stake in Sydney Airport Holdings Ltd to shareholders.
"The strong operating performance and the Sydney Airport distribution confirms our positive view and suggests Macquarie is on the way back to doing what it does best - taking full advantage of the recovery in equity and investment markets," said Morningstar analyst David Ellis.
Macquarie also unveiled an interim dividend of A$1.00 a share, up from the A$0.75 it paid in the first half of last year.
The shares were 4.6 percent higher at A$53.29 in afternoon trade, compared to a 0.2 percent decline for the broader market. The shares have rocketed 50 percent for the year to date on hopes that a rebound in mergers and acquisitions as well as initial public offerings would drive earnings higher.
Macquarie Securities, which contains the bank's equities arm, made a first-half net profit contribution of A$71 million, up from a loss of A$64 million in the same period a year earlier.
Chief Financial Officer Patrick Upfold said in a statement that the bank continued to maintain well-diversified funding sources and pursue a strategy of diversifying its funding, including growth in its deposit base.
Macquarie has also drawn attention for its rapid growth in the Australian mortgage market. The bank said its Australian mortgage portfolio had increased 26 percent since March to A$14.6 billion, or 1 percent of the nation's mortgage market.
Macquarie's growth threatens to disrupt a highly profitable segment of the banking industry long dominated by the country's top four lenders: Australia and New Zealand Banking Group Ltd , Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corp.