NEW YORK - Investment bank Goldman Sachs Group Inc. <GS.N> on Tuesday said quarterly profit more than doubled to near-record levels, yet its shares fell as investors fear the good times on Wall Street may be coming to an end.

Goldman followed rival Lehman Brothers in reporting blowout earnings buoyed by strong mergers, underwriting and trading results. But, like Lehman, its shares declined as profit slipped from the record first quarter amid a market slump and fear that inflation will end more than three years of soaring profits in the securities business.

The world's top investment banking, trading and money-management firm reported net income of $2.31 billion, or $4.78 a share, for the fiscal second quarter ended May 26. That's up from $865 million, or $1.71, a year earlier, a weak quarter marked by turmoil in bond markets.

Excluding $138 million in stock compensation expenses, Goldman earned $4.97 a share, trouncing analysts' average forecast of $4.28 as compiled by Reuters Estimates.

Net revenue more than doubled to $10.1 billion from $4.81 billion a year earlier, beating forecasts by 14 percent, with strong increases across the company's businesses.

"There's not much not to like. It looks like another good quarter," Sandler O'Neill & Partners analyst Jeff Harte said. "The question will remain, what is the outlook if equity markets remain weak?"

Goldman shares were down $2.95, or 2 percent, to $142.05 in midday trade on the New York Stock Exchange after touching a three-month low earlier in the session. The shares have fallen 16 percent from their record high in April.

Chief Financial Officer David Viniar told reporters in a briefing that the firm's backlog of pending deals expanded in the quarter. Yet Goldman cannot assure that profit will keep up the pace of the past three years.

"While corporate activity still remains very high, CEO and investor confidence could be affected if market weakness and uncertainty do persist," Viniar said.

Later in the briefing, he added, "If market weakness continues for six weeks, you could see things get slower."

The current quarter, which ends in August, is seasonally the weakest for brokers.

SECOND-BEST QUARTER

Goldman said M&A advisory and underwriting revenue of $1.53 billion marked its best quarter in six years and its second-best ever, driven by initial public offerings. Year to date, Goldman led the industry in mergers and issuing stock.

Fixed income, currency and commodities trading revenue rose 15 percent to a record $4.32 billion. Even equities trading revenue, which analysts cautioned would be hurt by the recent downdraft in stock prices, posted its second-best quarter at $2.35 billion.

Goldman's traders ramped up their market bets during the quarter, more than doubling daily value-at-risk from a year earlier, to $112 million. The increase reflected opportunities across all its trading businesses, Viniar said.

Still, all eyes are on the second half as equity markets continue a slump that began in mid-May, when investors lost some of their appetite for risk. Fears that inflation will lead to higher interest rates are weighing on stock markets and might, analysts warn, scuttle mergers and IPOs.

"The road from (deal) filing to completion could get longer if difficult equity markets persist in the weeks to come," Sandler O'Neill's Harte said.

This period of anxiety comes as Goldman prepares for new leadership. On June 2 the firm said President Lloyd Blankfein would become chief executive if the U.S. Senate confirms Goldman's current chief, Henry "Hank" Paulson, as U.S. Treasury Secretary.

On Monday, Lehman Brothers Holdings <LEH.N> reported a 47 percent rise in quarterly earnings, but its shares fell to a six-month low on concern that industry earnings have peaked.

Goldman shares rose by half in the past year, outpacing a 37 percent advance in the AMEX Broker-Dealer Index. The stock is the priciest among Wall Street firms at 2.4 times book.

Goldman's quarter earnings included a $700 million pretax gain from a power plant sale and an undisclosed gain on its stake in NYSE Group Inc. <NYX.N>, which went public in March. Based on comments by Viniar, Goldman's gain in the quarter was less than $100 million.

Goldman also posted a loss on its stake in Japanese bank Sumitomo Mitsui Financial Group <8316.T>, half of which is now hedged.

"We don't believe the report is impressive enough to make the market reverse its recent negative sentiment and risk- aversion," Fox-Pitt Kelton analyst David Trone said in a note.

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