Updated from 11:23 a.m. EST

Lehman Brothers Holdings

( LEH) reported Monday that its first-quarter earnings more than doubled, far outpacing analysts expectations and setting the stage for a strong first quarter for investment banking earnings.

Lehman, the fourth-largest securities firm, said its net income totaled $541 million, or $3.69 a diluted share, in the fiscal quarter ended Feb. 29, compared with $211 million, or $1.57 a share, in the year-earlier quarter.

"The overall business environment was exceptionally good this quarter," said David Berry an analyst for

Keefe, Bruyette & Woods

who rates Lehman a buy. His firm does no underwriting. "The company said in their conference call that business backlog is higher today than when the quarter began."

The latest quarter's results well exceeded the highest expectation of $3.10 a share. The consensus estimate for the quarter from

First Call/Thomson Financial

was $2.88.

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Shares of Lehman were down a slight 1, or 1%, to 90 7/16 in midday trading after retreating from a new all-time high of 94 1/4.

Richard Fuld, Lehman's chairman and chief executive, attributed the quarter's results to strong revenues from all segments and the firm's effort to diversify its revenue mix by business and by region.

Net revenues for the first quarter doubled, to $2.2 billion from $1.12 billion in the similar quarter of 1999.

The segment with the biggest gain percentage-wise was client services for wealthy investors, which jumped 121% to $270 million from $122 million. Capital markets, which includes trading of stocks and bonds, was the single biggest revenue source with $1.34 billion in revenues, up from $687 million in the same quarter the year before. Investment banking rose a healthy 92% to $593 million because of strong underwriting in an active initial public offering market.

Lehman is also stepping up investment spending in hiring and technology, Berry said. "And you only do that if things look good." This all bodes well for

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley Dean Witter

( MWD), who are reporting later this week. Shares of Goldman Sachs rose 3 11/16, or 3%, to 120 3 /16 and Morgan Stanley increased 1 3/16, or 1%, to 90 1/16.

The results, Fuld said in a statement, underscore Lehman's ability to "continue to enhance the organization's potential going forward."