Updated from 9:15 a.m. EDTA bleak week on Wall Street brightened a bit Thursday when Lehman Brothers ( LEH) reported quarterly earnings and revenue that far surpassed even the rosiest estimates. The bond powerhouse earned $437 million, or $1.67 a share, up almost 50% from $296 million, or $1.08 a share, a year ago. According to Thomson First Call, analysts were expecting the firm to earn $1.17 a share in the quarter. Lehman's earnings were fueled by the strong performance of its fixed-income trading desk, a trend that has prevailed at many Wall Street firms this year. The revenue gains in bond trading more than made up for the firm's relatively small decline in investment banking revenue. Bond trading and bond underwriting traditionally have been staple business lines at Lehman, so it's not surprising that the firm would clean up in the current low interest rate environment, as investors have shown an appetite for higher yielding junk bonds. But Lehman's performance is even better than that of Bear Stearns ( BSC), another bond giant, which reported better-than-expected earnings on Wednesday. In the quarter, revenue from principal transactions -- mainly bond trading -- was $1.2 billion, compared with $627 million a year ago. Meanwhile, investment banking revenue declined by only 7% to $432 million. From a revenue perspective, it was one of Lehman's best quarters ever. Still, Lehman's strong performance wasn't enough to overcome a wave of selling in the financial sector on Thursday. In midday trading, Lehman's stock was down $2.15, or 2.9%, at $71.84, as investors seemed preoccupied with new worries about the strength of the much-anticipated economic recovery. Indeed, the selling in financial stocks outpaced the overall market decline Thursday, with the Amex Securities Broker/Dealer Index dropping 2.4% and the Philadelphia KBW Bank Index sliding 1.5%. One of the biggest losers on the day was Morgan Stanley ( MWD), falling $2.45, or 5.2%, to $44.44, in the aftermath of Wednesday's disappointing earnings report and a number of analyst downgrades.