NEW YORK (CNN/Money) - No. 1 brokerage Merrill Lynch & Co on Tuesday posted an unexpected gain in second-quarter profits, which included costs from a $100 million settlement with the New York Attorney General.

Sales slipped as Wall Street struggles through the worst bear market in a generation.

But cost cutting allowed Merrill to raise year-over-year profits for the first time since early 2000, when the business of investment banking and trading boomed.

The firm, charged by New York Attorney General Eliot Spitzer with pushing stocks to win investment banking business, earned $634 million, or 66 cents a diluted share, in the June quarter. That's up from $541 million, or 56 cents a diluted share, in the year-earlier period. Analysts surveyed by earnings tracker First Call had a consensus earnings-per-share forecast of 58 cents for the period.

Revenue fell to $4.95 billion from $5.57 billion a year earlier. That edged past First Call's revenue forecast of $4.93 billion.

But Merrill benefited from tight cost controls and the elimination of 1,800 jobs, or 3 percent of its staff, in the quarter.

"They're making real progress every quarter," Fox-Pitt, Kelton analyst Reilly Tierney told Reuters. "They are doing a great job on the cost side."

The sinking stock market has kept companies from going public, a big source of fees for companies like Merrill. The business of mergers and acquisitions has also slowed

Merrill's underwriting revenue fell 25 percent and advisory revenue fell 38 percent. Investors have stayed out of the market. Commission revenue dropped nearly 12 percent at Merrill.

"The market environment does not look like it's improving," Merrill Chief Financial Officer Thomas Patrick said on a conference call, indicating the firm is still eyeing more job cuts.

Merrill (MER: Research, Estimates) shares rose 70 cents to $37.65 Tuesday afternoon, narrowing its year-to-date loss to 27 percent.

Separately, Charles Schwab (SCH: Research, Estimates), the No. 1 discount brokerage, reported a slight dip in second-quarter earnings Tuesday.

Schwab reported net income of $98 million, or 7 cents a share, down from $102 million, or 7 cents a share, last year.  

-- from staff and wire reports