Morgan Stanley's first-quarter results beat expectations, as trading revenue rose sharply and the bank's wealth management business began to improve, sending its shares up in premarket trading on Thursday.

Wall Street banks have had a good first quarter as capital markets activity returned after a dismal 2011. In the past few days, rivals Goldman Sachs Group Inc , Citigroup Inc and JPMorgan Chase & Co have all said they have benefited from the rebound in capital markets.

But Morgan Stanley's rebound surpassed these rivals, posting higher trading revenue even over the first quarter of last year -- a benchmark by which others have fallen short.

The bank gained market share in key trading areas such as foreign exchange and interest rates, Morgan Stanley Chief Financial Officer Ruth Porat said in an interview.

We had identified several years ago that we were punching below our weight in fixed income products, Porat said. I think you're beginning to see the fruits of all we've done here.

Morgan Stanley shares rose 89 cents to $18.55 in premarket trading.

Fixed-income trading rebounded significantly and outpaced peers -- and that's still Morgan Stanley's core business, said Shannon Stemm, an analyst at Edward Jones. We should see good performance out of the shares today.

Still, the bank lost money during the first quarter because an accounting rule cost it $2 billion.

The Wall Street investment bank reported a loss of $119 million, or 6 cents per share, compared with a profit of $736 million, or 50 cents per share, in the year-ago quarter.

Excluding the special accounting item, known as debt valuation adjustment (DVA) -- which requires companies to reflect changes to their own debt values, leading to charges when values rise and gains when values decline -- Morgan Stanley earned $1.4 billion, or 71 cents per share.

Net revenue totaled $6.9 billion. Excluding DVA, revenue was $8.9 billion, up from $7.8 billion a year earlier.

The revenue is a good solid number, said Wojtek Zarzycki, chief investment officer of Optimal Investing in Toronto. It is a pleasant surprise here.

Excluding DVA, Morgan Stanley's trading revenue rose 33 percent to $5 billion. Pretax income from trading, excluding DVA, more than doubled, to $1.67 billion from $621 million.

The investment bank also showed progress in its wealth-management business, which investors and analysts have been watching closely because the integration of its Morgan Stanley Smith Barney joint venture with Citigroup Inc has been slower than expected.

Morgan Stanley's global wealth management business, which includes the joint venture, reported net revenue of $3.4 billion, with a pretax profit margin of 11 percent, up slightly from a year ago and from the previous quarter. The business reported more client assets in fee-based accounts and more revenue and assets per financial adviser.

(Reporting By Lauren Tara LaCapra; Editing by Maureen Bavdek)