Updated from 8:14 a.m.

Merrill Lynch ( MER) ended 2006 firing on all cylinders.

The big Wall Street broker posted a 68% gain in fourth-quarter profit fueled by gains from its fast-growing private equity business. Meanwhile, the firm also announced it is raising its quarterly dividend by 40% to 40 cents a share.

In the quarter, Merrill earned $2.3 billion, or $2.41 a share, compared with $1.37 billion, or $1.41 a share, a year ago. Revenue rose 27% to $8.61 billion.

Merrill easily beat the expectations of Wall Street analysts, who were looking for earnings of $1.92 a share on revenue of $7.73 billion, according to Thomson Financial.

In early trading, shares were up $1.53 to $98.35

Revenue at the firm's global market and investment bank rose 55% to $5.4 billion in the fourth quarter. The firm says it took in sharply higher revenue from underwriting bonds and stocks, proprietary trading and its private equity business.

The increase was largely due to its fixed income, currencies and commodities businesses. The brokerage said that "record revenues from credit products, commodities and foreign exchange, as well as strong growth from trading interest rate products," fueled the rise.

In addition, revenue from equity markets rose 49%, to $1.8 billion led by private equity, proprietary trading and cash trading businesses. Principal transaction revenue tripled from a year earlier and jumped 31% from the third quarter, to $2.2 billion

In the quarter, Merrill Lynch recorded a big paper gain on the value of its equity stake in Hertz ( HTZ), the car rental company that the Wall Street firm helped take private a year ago before unloading it in an IPO this fall.

Investment banking fees, meanwhile, also had nice results, up 48%, to $1.5 billion, despite the fact that advisory fees fell nearly 20% in the quarter, to $287 million. Debt underwriting rose 81%, to $1.2 billion.

Merrill's global wealth management business rose 13%, to $3.28 billion, but when compared to the bullish investment banking and trading results, asset management and portfolio servicing fees in total showed weakness. They dropped 20% in the quarter from a year earlier, to $1.3 billion.

Mike Mayo, an analyst at Prudential Equity Group says Merrill is the leader in the quarter among the pure-play brokerages.

"The quarter reflected a big earnings surprise that was not too dependent on any one temporary item," he writes in a note.

Noninterest expenses rose 10.5%, to $5.2 billion. Compensation rose 13.5%, to $3.3 billion in the quarter.

For the full year,Merrill paid out $17 billion in compensation, or 37% more than in 2005. Wall Street firms paid out record bonuses last year, which was on the best on record for many big brokerages.

The company had 56,200 employees at the end of the year, up 1.6% from the end of the third-quarter.

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