Morgan Stanley on Wednesday said quarterly earnings rose on strong trading and merger activity, as the largest U.S. investment bank continued its turnaround from a tumultuous 2005.

New York-based Morgan Stanley, which also has brokerage and credit card units, said net income rose to $1.85 billion, or $1.75 a share, for the third quarter ended August 31. That's up from $144 million, or 13 cents, a year ago, when it absorbed a $1 billion charge.

Analysts, on average, expected Morgan Stanley to earn $1.37 a share on revenue of $7.84 billion, according to Reuters Estimates.

Morgan Stanley shares rose 2.5 percent in early electronic trading to a new five-year high of $73.65 from its closing price of $71.85 Tuesday on the New York Stock Exchange.

Net revenue rose 15 percent to $7.99 billion. Excluding items, earnings from continuing operations rose 59 percent from $1.17 billion, or $1.09 a share.

Institutional securities revenue rose 20 percent to $4.99 billion, fueled by strong equities, debt and commodities trading. Revenue at global wealth management, the firm's long-struggling brokerage arm, gained 9 percent to $1.37 billion.

Revenue at the Discover credit card division, another area that had been posting weak results, rose 15 percent to $1.05 billion.

Last week, rivals Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. Inc. all reported better-than-expected results for the fiscal quarter, surprising investors who feared a summertime slowdown would dent profits.

Wall Street shares have surged in the past week as trading and banking income proved surprisingly resilient.

Shares of Morgan Stanley rose 11 percent during the quarter, lagging the 24 percent gain by the AMEX Securities Broker Dealer Index but edging out the S&P 500 Index.

(Additional reporting by Megan Davies)