Lehman Brothers Holdings Inc. posted a 3.2 percent decline in quarterly earnings on Tuesday as the U.S. investment bank wrote down mortgage and leveraged loan assets, but the results beat expectations and its shares rose.

The results soothed investors concerned that the widening U.S. subprime mortgage crisis would wallop investment bank earnings. Shares of Bear Stearns Cos. Inc., Goldman Sachs Group Inc. and Morgan Stanley, all of which report results this week, also rose.

A slight (earnings) decline is a pretty admirable showing in this environment, said Ned Riley, head of Riley Asset Management in Boston.

Lehman's bonds rose relative to Treasuries, and its shares rose 2.4 percent. But the company's shares are still down more than 20 percent since the beginning of the year, more than twice the decline for the overall sector.

Investors are concerned about the bank's exposure to U.S. subprime mortgages. Defaults have been rising among these home loans, and Lehman is one of the biggest underwriters of mortgage bonds on Wall Street.

Lehman also has billions of dollars of exposure to leveraged buyout deals, and sharing that risk with other investors may be harder than previously believed.

The key point to ask is how much is still on the books that they didn't address yet, said Robert Lutts, president and chief investment officer at Cabot Money Management in Salem, Massachusetts, adding that it is too soon to buy investment bank stocks.

Lehman said it wrote down some $700 million of residential mortgage positions and loan commitments.

The fourth-largest U.S. investment bank by market capitalization said its earnings were $887 million, or $1.54 a share for the third quarter ended August 31, compared with $916 million, or $1.57 a share in the same quarter last year.

Analysts had on average expected earnings of $1.47 a share before exceptional items, according to Reuters Estimates. Excluding exception items, Lehman posted earnings of $1.60 a share, according to Reuters Estimates.

Lehman's shares opened $1.38 higher on the New York Stock Exchange at $60.00.

The cost of protecting Lehman's debt against default fell about 0.045 percentage points to 1.13 percent annually, or $113,000 a year for every $10 million of bonds protected for five years. Lower credit protection costs indicate less investor concern about the company's credit quality.

Spreads, or risk premiums over Treasuries, on the company's notes maturing in 2012 with a 5.25 percent coupon, narrowed 0.01 percentage point to 1.74 percent.

In recent weeks, Lehman has said it is cutting more than 2,000 jobs as it scales back its mortgage lending efforts globally, in a sign that the investment bank does not anticipate the subprime mortgage market returning to its recent peaks anytime soon.

(Additional reporting by Tim McLaughlin and Neil Shah)

(Reporting by Dan Wilchins)