HSBC reported a surprise increase in first half profit and said it remained positive on the prospects for emerging market economies, even if the United States and Europe are likely to remain sluggish.

Shares in Europe's biggest bank rose to trade more than 3.5 percent higher after it announced first-half profits of $11.5 billion, up from $11.1 billion a year ago and better than the $10.8 billion average in a Reuters poll of analysts.

But the bank highlighted risks to global economic recovery from increased regulation, particularly as governments grapple with sovereign debt crises.

The pace and quantum of regulatory reform continues to increase at the same time as the global economy appears to be losing momentum in its recovery, HSBC said in a statement on Monday.

We are concerned about the possible pro-cyclical impacts of further deleveraging of the global economy arising from the regulatory reform agenda, at the same time as sovereign credit concerns and fiscal consolidation challenges become more critical.

(Reporting by Steve Slater and Sudip Kar-Gupta, writing by Paul Hoskins; editing by Myles Neligan)