PARIS (Reuters) - France's BNP Paribas posted better-than-expected quarterly earnings on Wednesday after investment banking revenue jumped thanks to a surge in equities trading, offsetting a sharp drop in net interest income in its French retail business.

The euro zone's biggest bank by market value said second-quarter net income grew by 21% on a reported basis from a year earlier to a record 3.4 billion euros ($3.69 billion), exceeding the 2.91 billion-euro average of 16 analyst estimates compiled by the group.

Group revenues rose about 8% to 12.3 billion euros, beating the 11.9 billion-euro average estimate. The cost of risk, or money set aside for failing loans, was a lower-than-expected 752 million euros.

BNP's results were aided by a 58% jump in sales from equity and prime brokerage services, which involve facilitating the buying, selling and lending of shares and providing other services to clients such as hedge funds.

BNP said its overall second-quarter investment bank revenues climbed 12% from a year ago to 4.48 billion euros.

The results will be a boost for CEO Jean-Laurent Bonnafe, who has made BNP's investment banking division a key driver of growth plans but has struggled to lift the bank's shares in recent months.

The bank's stock price has risen just 3.3% in 2024, against a close to 22% rise for the STOXX Europe 600 banks index, dragged down partly by the lender's underwhelming performance and partly by recent political uncertainty following President Emmanuel Macron's decision to call snap parliamentary elections.

BNP, which sees annual revenues from market activities rising by more than 7.5% on average over 2021-2025, delivered a better performance at its investment bank in the second quarter than did some rivals on Wall Street.

France has seen a slow return of initial public offerings (IPO) in 2024, with the listing of Exosens and Planisware, for which BNP acted as global coordinator.

BNP's second-quarter sales from trading in fixed income, currency and commodities (FICC) fell 7%, as demand retreated, in particular for commodities.

The bank's retail division was hit by an 11% drop in net interest income (NII) - the difference between what banks earn on loans and what they pay on deposits - in France.

Rising NII has swelled bank coffers this year but analysts are concerned about it slowing as the European Central Bank reduces interest rates.

BNP confirmed its full-year targets, including revenue growth of more than 2% compared to 2023 distributable revenues and a group net income of more than 11.2 billion euros.

($1 = 0.9213 euros)