JPMorgan Chase & Company reported a 47 per cent increase in quarterly earnings, but much of the gain came from dipping into money previously set aside to cover bad loans.

The gradually recovering US economy is allowing JPMorgan to keep less money on hand for loan losses. Profit and revenue was stronger than analysts had expected, and the bank made more loans.

But JPMorgan is still wrestling with the aftermath of the mortgage crisis - it set aside another $1.5 billion to cover legal settlements mainly linked to US home loan foreclosures.

'Hopefully it's going to be a good year,' said chief executive Jamie Dimon, adding that the economy looks better now than it did 12 months ago.

Analysts said the results could indicate headwinds for major banks reporting next week. The largest US bank, Bank of America, reports on Friday, while Citigroup reports on Tuesday. Goldman Sachs reports on Wednesday.

JPMorgan said profit increased to $4.8 billion, or $1.12 a share, from $3.3 billion, or 74 cents a share, a year earlier. Analysts on average expected $1 a share.

Fewer bad loans meant the bank could reduce loan-loss reserves for its credit card unit by $2bn, or 30 cents a share after tax.

'The loan-loss reserves are something that bugs me,' said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor. 'I would love to see a bank hit their numbers without taking from loan-loss reserves for once,' he added.

Revenue rose 6 per cent to $26.7 billion on a managed basis, which adjusts for an accounting change for off-balance sheet entities. That was higher than the $24.37 billion expected by analysts.

In JPMorgan's investment bank, revenue rose 26 per cent to $6.21 billion. Compensation expense per employee for the full year, a measure of how investment banking bonuses will fare, dropped 2.7 per cent to $369,651.

Merger advisory revenue fell 31 per cent from the fourth quarter of 2009 to $424 million, but chief financial officer Douglas Braunstein said revenue in this area should rise in 2011 because of the large number of deals in the pipeline.

Fixed-income trading revenue, at $2.88 billion, was 5 per cent higher than the fourth quarter of 2009 but down 8 per cent from the third quarter of 2010.

Some analysts expect Goldman Sachs and Morgan Stanley to post 10 per cent to 15 per cent declines in fixed income trading revenue, so JPMorgan's results could mean the business is not as bad as feared.