Updated from 8:34 a.m. EST

Morgan Stanley ( MWD) made it three in a row for major Wall Street firms Thursday, reporting a 35% jump in first-quarter earnings thanks to strength in trading, retail stock brokering and investment banking.

The company earned $1.23 billion, or $1.11 a share, in the quarter ended Feb. 29, compared with earnings of $905 million, or 92 cents a share, last year. Revenue rose 14% from a year ago to $6.2 billion.

Analysts had been forecasting earnings of 96 cents a share on revenue of $5.55 billion, making Morgan Stanley the third major brokerage to wipe out quarterly estimates this week after Lehman Brothers ( LEH) and Bear Stearns ( BSC) did it Tuesday and Wednesday.

Like Lehman and Bear, Morgan Stanley saw strength across its major business lines, adding revenue gains in stock brokering and corporate finance to an already-strong performance in stock trading. Revenue in the bank's institutional securities division, which comprises market making, securities underwriting and mergers advisory, rose 35% to $3.50 billion.

Goldman Sachs ( GS) will try to continue the streak when it reports earnings on March 23.

In early afternoon trading, shares of Morgan Stanley were down 85 cents, or 1.4%, to $59.61. The decline was roughly equal to the 1.5% slide in the AMEX Broker Dealer Index.

Breaking the segment down, bond trading and sales revenue was up fractionally to $1.7 billion, while equity sales and trading revenue totaled $1.1 billion, up 13% from a year ago. Advisory revenue rose 40% to $232 million and underwriting revenue rose 51% to $507 million, as surging stock deals offset a 7% decline in bond underwriting.

In the investment banking unit, trading revenue from principal transactions surged 51% to $2.35 billion while investment revenue from principal transactions totaled $29 million, compared with a negative $22 million last year.

Revenue in Morgan Stanley's individual investor group rose 5% to $1.2 billion, while revenue jumped 8% in its investment management group to $642 million and revenue in credit services jumped 18% to $958 million.

According to Morgan Stanley, the firm ranked second in announced global mergers-and-acquisition advice during the quarter with a 45% market share; first in worldwide equity and equity-related issuances with a 14% market share; first in worldwide IPOs with a 29% market share; and fourth in global debt issuances with a 7% market share.

Another factor fueling Morgan Stanley's performance was a sharp improvement in credit quality at the firm's Discover credit card business. Pretax earnings in the Discover business was $365 million, a 26% gain over a year ago, much higher than most analysts anticipated.

The Discover earnings were driven by a 22% decline in the money set aside in the quarter for bad loans and delinquencies. The quarterly provision for consumer losses was $262 million. The company said bankruptcies at Discover were at a three-year low.

Yet the underlying business at Discover still shows signs of weakness. Total non-interest revenue was $914 million, down a 1% from a year ago.

In a conference call, Morgan Stanley Chief Financial Officer Stephen Crawford cautioned analysts and investors not to view Discover's strong earnings as a barometer for the rest of the year. He said the firm still has lingering concerns about high levels of consumer debt and intends to spend more on marketing as the economy improves -- an expense that could cut into future earnings at the credit card division.

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