Deutsche Bank AG's second-quarter net profit rose 68 percent to 1.092 billion euros ($1.56 billion), boosted by its investment banking arm, but loan provisions rose sharply as economic slowdown took its toll.

Net profit at Germany's largest bank beat the average estimate of 985 million euros in a Reuters poll of analysts and was higher than the 649 million euros it reported in the second quarter last year.

The bank's results released on Tuesday showed that pretax profit more than doubled to 1.32 billion euros from 642 million euros a year earlier, with the investment banking arm accounting for 828 million euros.

A rise in revenue from trading debt-related products and a reduction of loss-making toxic assets on its books helped Deutsche's investment banking operations after a 311 million euros loss in the same period a year ago.

Deutsche's results show that for some firms the investment banking sector appears to have recovered, even if the fallout from the credit crisis in the real economy is requiring extra provisions for problem loans.

Deutsche said provisions for credit losses rose to 1 billion euros in the second quarter from 135 million euros in the second quarter in 2008 and almost double the 526 million euros in provisions made during the first quarter.

The increase reflects the generally weaker credit environment and includes some 508 million euros in provisions related to assets which are being reclassified under International Accounting Standard 39, the bank said.

At the investment bank's core debt sales and trading arm, markdowns on toxic assets tied to subprime mortgages fell to 108 million euros during the second quarter, compared with the 2.1 billion euros in markdowns in the prior-year quarter.

Chief Executive Josef Ackermann said the Frankfurt-based bank is well prepared for an uncertain environment for the rest of 2009. The outlook for the remainder of the year is strongly influenced by progress in the global economy, Ackermann said in a statement.

Deutsche boosted its tier 1 capital to 32.5 billion at the end of the quarter, giving it a capital ratio of 11 percent, up from 10.2 percent at the end of the first quarter 2009, the bank said.

(Reporting by Edward Taylor, editing by Will Waterman)