Updated from 9:29 a.m. EST

A better-than-expected fourth-quarter earnings report from Merrill Lynch ( MER) provided a badly-need jolt to financial stocks on Tuesday, as the brokerage posted big gains in fees from investment banking work and commissions from stock trading.

In the quarter, the big Wall Street securities firm earned $1.19 billion, or $1.19 a share, compared to $1.2 billion, or $1.19 cents a share, last year. Merrill easily beat the Thomson First Call consensus estimate of $1.10 a share. Earnings slipped by 1.8%, but most were expecting profits to slide by about 10%.

The investment firm also surpassed Wall Street's revenue estimates. In the quarter, analysts were looking for Merrill to generate $5.3 billion in revenue, up 21% over last year. The actual net revenue figure was $5.89 billion. "Strong results in the fourth quarter contributed to a record year for Merrill Lynch,'' said Chairman and CEO Stan O'Neal in a prepared statement. "We finished 2004 well positioned to continue to reward shareholders in the future.''

In late morning trading, shares of Merrill were up $1.06, or 1.9%, to $57.86. Merrill pushed other broker stocks higher, with the AMEX Broker/Dealer Securities Index up 1.39%.

Last year, Merrill was one of the worst-performing brokerage stocks. But this year, many on Wall Street are expecting a strong rebound, as long as the economy remains healthy. A revival in stock trading and stock underwriting is expected to help Merrill generate fatter profits this year.

Indeed, some of those expectations for 2005 were fulfilled in the fourth quarter of last year. Commission revenue, most of which comes from stock trading by Merrill's wealthy customers, rose 14.4% to $1.3 billion. Fees from investment banking work increased 31% to $994 million. Asset management fees were up 16% to $1.44 billion.

The only weak link in Merrill's quarter was principal transactions, which includes trading for its own account. Revenue from those transactions fell 21.5% to $296 million.

Merrill produced a good quarter despite a hefty 31% surge in compensation-related expenses. In the quarter, the firm shelled out $2.69 billion in salary and related expenses, as it hired several thousand brokers and investment bankers. The firm went on a hiring spree last year, after eliminating more than 25% of its workforce during the recession and grinding bear market.

In the quarter, Merrill added 700 employees, bringing its total workforce to 50,600. Over the course of the entire year, the firm increased the number of brokers it employs by 5%. The firm intends to continue hiring more brokers this year.

The firm also appears to have paid more money to lawyers in the quarter to defend itself in litigation. Professional fees rose 34% to $203 million. Spending on advertising and marketing rose 43% to $152 million.

Several Wall Street analysts were quick to crow about Merrill's earnings.

Fox-Pitt, Kelton brokerage analyst David Trone says the fourth quarter numbers were most impressive because total revenues came in far ahead of a year ago. In a research note, Trone said: "For the first time in awhile, Merrill has beat expectations via the top line, not just expense control.''

UBS brokerage analyst Glenn Schorr applauded Merrill's earning, calling it a "great quarter.''

Despite the positive fourth quarter earnings, Merrill executives were reluctant to offer much insight about the firm's prospects for the first quarter, given the overall rocky start to the trading year.

Chief Financial Officer Ahmass Fakahany, in a conference call with analysts, said he is "prudently cautious'' about the quarter, adding that the shaky stock market during the first few weeks of 2005 makes it difficult to predict a near-term outlook.

Merrill is the last of the big five Wall Street securities firms to report earnings. Goldman Sachs ( GS), Morgan Stanley ( MWD), Bear Stearns ( BSC) and Lehman Brothers ( LEH) all reported quarterly earnings in December.