JPMorgan Chase reported a 50 per cent drop in its first quarter profits as America's third biggest bank took a $5.1 billion (£2.5 billion) writedown against investments in mortgage-backed securities and its portfolio of homeloans.

The US investment bank, which last month bailed out former US rival Bear Stearns, said today that first quarter profits for the three months to March fell to $2.37 billion compared with $4.79 billion during the first quarter last year.

Revenue for the first quarter fell by 11 per cent to $16.9 billion just ahead of analysts who were expecting turnover at $16.8 billion.

JP Morgan's better-than-expected earnings buoyed trading on both sides of the Atlantic, sending the Dow Jones industrial average up 159.2 points to 12,521 while the FTSE 100 index of leading shares breached the 6,000 mark, rising 106.1 points to 6,013.

Jamie Dimon, the chief executive of JPMorgan — the first bank to report quarterly earnings this week ahead of Merrill Lynch and Citigroup — said that he expects the economy to stay weak and for the credit markets to remain under stress.

He said: “These factors have affected, and are likely to continue to negatively impact, our firm’s credit losses, overall business volumes and earnings — possibly through the remainder of the year, or longer.

“However, we are prepared to manage through this down part of the economic cycle, given the strength of our liquidity, credit reserves, capital and operating margins, and to successfully position our company well for the future.”

JPMorgan's first quarter figures came two days after Wachovia reported an unexpected loss as a jump in foreclosures in California and Florida contributed heavily to a $4.4 billion (£2.2 billion) writedown in the first quarter.

Merrill Lynch is expected to report a writedown of between $4.5 billion and $6 billion when it reports its first quarter figures tomorrow and, on Friday, Citigroup is forecast to unveil an $11 billion hit from the credit crunch.

JP Morgan's investment banking division recorded a $87 million loss for the first quarter, compared to a $1.5 billion profit in the first three months of 2007. Also, revenue more than halved from $6.2 billion last year to $3 billion in the three months to March.

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