Goldman Sachs Group Inc's fourth-quarter profit fell 56 percent as trading and investment banking revenue plunged, but the bank managed to beat analysts' expectations, which had dropped considerably in recent weeks.

Wall Street's biggest bank by assets earned $978 million (635 million pounds), or $1.84 per share, down from $2.2 billion, or $3.79 per share, a year earlier.

Analysts on average had expected a profit of $1.24 per share, according to Thomson Reuters I/B/E/S.

Goldman shares were up 1.4 percent at $99 in premarket trading after it released the earnings report.

Despite seasonal weakness and a difficult operating environment, Goldman is able to at least hold its head up, said Gary Townsend, president of Hill-Townsend Capital.

During the quarter, stock and bond markets were hit by volatility stemming from the European debt crisis, leading clients to pull back on risk and delay acquisitions and stock and bond offerings. As a result, Goldman and rivals including JPMorgan Chase & Co and Citigroup Inc experienced sharp declines in profitability from capital markets operations.

While Goldman's revenue dropped 30 percent to $6 billion from $8.6 billion a year earlier, the bank took steps to reduce expenses and reported lower taxes than in the year-earlier period. Operating expenses declined 7 percent to $4.8 billion, while Goldman's tax provision of $234 million was down 78 percent.

The expense reductions allowed Goldman to report a better profit than dour estimates released by analysts in the weeks leading up to its report.

In mid-December Barclays analyst Roger Freeman lowered his fourth-quarter profit estimate for Goldman to 75 cents per share, calling 2011 another year to forget for Wall Street.

(Reporting By Lauren Tara LaCapra; editing by John Wallace)