Bear Stearns

(BSC)

, defying predictions that a slowdown in the mortgage market would crimp the Wall Street firm's profits, posted a robust 81% gain in second-quarter earnings.

The big jump in earnings was fueled by a combination of higher revenue from trading, investment banking work and interest payments by hedge funds and other borrowers of stock.

In the quarter, Bear Stearns earned $539 million, or $3.72 a share, up from $298 million, or $2.09 a share, in the year-ago period. The firm generated record net revenue of $2.5 billion in the quarter, up 33% from a year ago.

The New York-based company blew past the Thomson Financial consensus estimate for earnings of $3.12 a share on revenue of $2.1 billion.

Bear Stearns is the third big investment firm to post stellar earnings this week. But those earlier strong profit reports from

Lehman Brothers

(LEH)

and

Goldman Sachs

(GS) - Get Report

were not enough to keep inflation-wary investors from selling brokerage stocks.

However, with the stock market poised to open higher today, Bear Stearns' strong second-quarter earnings could lure investors into the beaten-up brokerage sector. Over the past two months, brokerage stocks have given up all of their gains for the year and most are now trading firmly in the red.

In premarket trading, shares of Bear Stearns were trading sharply higher, up $4.32, or 3.5%, to $124.20.

"We are very pleased to report our third consecutive quarter of record-setting results," says Bear Stearns Chairman and CEO James Cayne. "Our success in increasing the depth and breadth of our business both domestically and internationally and has fueled our enthusiasm and appetite for further growth."

Some on Wall Street had predicted that Bear Stearns' second quarter would suffer more from the impact of rising interest rates than its peers. That's because the firm is much more dependent on bond underwriting and bond trading for revenue than its competitors.

In particular, many worried that Bear Stearns' big mortgage-backed securities underwriting business would suffer in light of the slowdown in the mortgage market. But those concerns appear to be unfounded.

The firm's capital markets division took in $2 billion in net revenue, a 40% gain over the prior year. Bond-related activity accounted for $1.2 billion of those net revenue. The firm said the "securitization and trading volumes remained high,'' although it did not break out specific figures.

Traditional investment banking revenue rose 20% to $278 million.

Another strong line of business was Bear Stearns' clearing operation, which includes its hedge fund prime brokerage group and big stock lending business. The firm said net revenue from the clearing operation rose 5% to $289.5 million. Bear Stearns says some of the gains were due to more stock borrowing by its hedge fund customers.