UBS returned to a modest profit at its investment bank and struggled to attract new client money to its core wealth management operations, showing chief Oswald Gruebel still has a way to go to turn around the bank.

Gruebel's overhaul of the investment bank started to pay off in the fourth quarter as equities and fixed income, commodities and currencies revenues improved, though bigger losses on the bank's own credit, as well as losses on student loans, kept net profit to just 75 million Swiss francs ($78.35 million) after a surprise loss for the previous three months.

But UBS's core wealth management arm made little progress in winning new money after clients rattled by massive writedowns on toxic assets and a damaging tax dispute with the United States pulled out nearly 400 billion francs.

While we made substantial progress in 2010, we are fully aware that we have to continue to improve our results, Gruebel said in a statement.

The bank booked net money outflows for the third year running, despite the fourth quarter being the second consecutive quarter of modest client money growth.

While the bank won client cash in the Asia Pacific region -- traditionally an area of strength for UBS -- and among the ultra wealthy, it continued to bleed assets in Europe.

Wealth management revenues rose 2 percent in the fourth quarter, though the unprecedented strength of the Swiss franc partly offset increased client activity, UBS said.

On Monday smaller Swiss wealth manager Julius Baer took a hit from the strength of the Swiss franc against the euro and the U.S. dollar, suggesting Gruebel's former bank, Credit Suisse , could report a similar pattern in its Q4 results due Thursday.

UBS, which is still held in suspicion by the Swiss public after booking the biggest loss in the country's history in 2008, said it would pay out 10 percent less in bonuses for 2010, cutting the bonus pool to 4.3 billion francs.

It also said 1.550 billion francs of the bonus pool would be deferred to future years.

(Reporting by Jason Rhodes and Emma Thomasson; Editing by David Cowell)