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UPDATE 2-BofA beats profit estimates on higher interest income, loan growth

Siddharth Cavale

(Adds details on quarterly results)

Jan 16 (Reuters) - Bank of America Corp reported better-than-expected fourth-quarter profit on Wednesday as higher interest income and loan growth eclipsed declines in revenue from investment banking and bond trading.

The second-biggest U.S. lender's results were underpinned by four interest rate hikes by the central bank in 2018 and a strong job market that kept bad loans in check and borrowing healthy.

The bank's shares rose 4 percent to $27.72 in trading before the opening bell.

BofA, with its large deposit pool and rate-sensitive mortgage securities, relies heavily on higher interest rates to maximize profits.

Revenue rose in three of the lender's four main businesses. Global markets, which includes trading, recorded a fall in revenue as spikes in market volatility toward the end of the fourth quarter made investors wary of making big bets amid fears of global economic growth concerns.

Trading was weak across the board for banks in the fourth quarter. Rivals JPMorgan Chase & Co and Citigroup Inc reported double-digit declines in bond trading revenue earlier this week, citing the market downturn in December and wider credit spreads.

BofA's adjusted sales and trading revenue fell 6 percent, with a 15 percent fall in bond trading revenue overshadowing an 11 percent rise in equity trading.

The slump in bond trading was cushioned by rise in interest income and loan growth.

Total net interest income - the difference between what a lender earns on loans and pays on deposits - rose 7.3 percent to $12.3 billion. Average deposits rose nearly 2 percent to $1.34 trillion from the preceding quarter.

While the Federal Reserve's forecasts indicate two more rate hikes this year, traders of contracts tied to the central bank's policy are betting that the Fed will not deliver a single rate hike this year and will begin cutting rates next year.

Loans to consumers rose 4 percent, while those to businesses rose 2 percent.

Investment banking fees fell 5 percent due to lower debt underwriting and advisory fees.

Non-interest expenses fell 1 percent to $13.13 billion as Chief Executive Officer Brian Moynihan streamlines the lender's sprawling operations. Two years ago, Moynihan pledged to cut expenses to $53 billion by the end of 2018 and stick to that level until 2020.

Net income applicable to common shareholders rose to $7.04 billion, or 70 cents per share, in the fourth quarter ended Dec. 31 from $2.08 billion, or 20 cents per share, a year earlier, when it took a nearly $3 billion charge related to changes in the U.S. tax law.

Analysts on average were expecting the bank to earn 63 cents per share, according to IBES data from Refinitiv.

Revenue, net of interest expense, rose 11 percent to $22.7 billion. (Reporting by Siddharth Cavale and additional reporting by Sweta Singh in Bengaluru Editing by Saumyadeb Chakrabarty)