Barclays is expected to report a sharp drop in its key investment banking income on Friday to add to pressure on the bank and its boss, Bob Diamond, to show restraint on pay.

Diamond, the American investment banker who became chief executive of Britain's fourth biggest lender a year ago, has for years been one of Europe's best paid banking executives.

There have been calls for him to follow some of his peers and forgo his bonus after a bad year for the industry and as jobs continue to be cut and the economy wobbles.

Barclays is expected to report 2011 profits of about 6 billion pounds, little changed from 2010, after a weak end to the year at the investment bank arm Diamond built up over the past decade.

Barclays Capital's income in the final quarter of last year could sag to 2 billion pounds, down 11 percent from the previous quarter, according to Chris Manners, analyst at Morgan Stanley.

That would be down 43 percent from a year earlier and mark BarCap's worst quarter since 2008. It would raise concerns that ambitious growth targets set during an aggressive expansion are too optimistic.

Barclays is the first of the big UK banks to report, at a time when scrutiny on pay and lending has intensified in the face of a tough economic climate.

Its shares are up about a third this year, clawing back most of their losses during 2011. They closed on Thursday at 233.1 pence, valuing the bank at about 29 billion pounds.

A slump in bond trading and advisory work hammered all banks late last year.

Underlying Q4 revenue at U.S. investment banks fell by an average of about 5 percent from the previous three months. At Deutsche Bank revenues dipped 3 percent, but at Credit Suisse it crashed by half, as its fixed income revenue slumped by 95 percent.

Banks are expected to make up for some of the lower revenue by cutting pay, and Barclays is expected to cut bonuses for its investment bankers by about 30 percent on average.

Diamond will update on his reshaping of his bank in the face of tougher regulations and the capital markets slowdown.

He wants to cut costs and shed assets to lift return on equity to 13 percent by 2013. Its RoE was 6.9 percent in the first nine months of last year.

The bank's adjusted 2011 pretax profit -- excluding losses on the value of its own debt, payments on insurance mis-selling and some other items -- is expected to be 6.3 billion pounds, according to the average of 27 analysts polled by Reuters.

($1 = 0.6322 British pounds)

(Reporting by Steve Slater; Editing by David Cowell)