NEW YORK (CNNMoney.com) - Investment banks are expected to report another quarter of bumper earnings this week on strength in trading and underwriting, as well as a rash of merger activity.

Industry analysts are expecting a robust first quarter on the heels of last year's solid performance, when sector leaders Goldman Sachs (Research), Lehman Brothers (Research) and Bear Stearns (Research) posted record earnings for the 2005 fiscal year amid a wave of mergers and acquisitions and a surge in trading revenue.

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"I'm either above consensus or close to it -- if they're not going to hit my numbers it's because they beat it, not because they missed it," Jeff Harte, an analyst at Sandler O'Neill and Partners, said of the banks posting earnings this week.

Goldman Sachs reported results Tuesday that blew past average forecasts on Wall Street -- earning $5.08 a share versus the consensus estimate of $3.29 a share -- and above the record $3.35 a share that the Wall Street powerhouse earned in the fourth quarter.

Analysts surveyed by earnings tracker Thomson/First Call are also expecting upbeat results from Lehman Brothers and Bear Stearns, due to report later this week, and Morgan Stanley (Research), set to report later this month.

Consolidation has fueled merger activity in Europe, and global debt and stock markets remain robust, analysts said, explaining the positive outlook for the banks.

"Not only are long-term factors pointing to considerable strength, but short-term developments in the last couple of months have been positive," Richard Bove, analyst at Punk Ziegel & Co., told CNNMoney.com.

The quarter got off to a rough start in December, but turned around and started gaining strength amid an increase in trading in debt-capital markets, he said.

Investment banks generate revenue by advising companies on mergers and acquisitions and by helping companies sell stock and issue debt. But in recent years a bigger chunk of their revenue has been coming from trading stocks, bonds and commodities for their own accounts.

Commodities especially have contributed to the recent boom in business, as rising energy and metals prices have helped boost trading revenues.

Oil prices remain above $60 a barrel and have been swinging widely as demand for crude remains high against a backdrop of geopolitical uncertainty. Trading of gold also has soared as inflation concerns have triggered the precious metal's rise.

Banking shares have jumped amid the favorable market conditions -- Bear Stearns has added nearly 15 percent so far this year, while Lehman has gained 11 percent and Goldman 10 percent -- and analysts are upbeat about the sector's long-term outlook.

"Fundamentals for the brokers and asset managers look favorable based on our economists and strategists view of above average economic growth and upward-trending equity markets," Banc of America Securities analyst Michael Hecht wrote in a recent report.

He has a "buy" rating on Bear Stearns and Morgan Stanley, but rates Goldman Sachs and Lehman Brothers "neutral."

From the longer term perspective, there are a lot of reasons to stay bullish on banking stocks, although they can be volatile, analysts warned.

"A hiccup in equity markets hits them more," Harte cautioned. "Don't expect them to (perform) in a straight line up."

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None of the analysts quoted in this story own shares of any the companies mentioned in this story. Sandler O'Neill and Banc of America Securities do business with the banks in this story, but Punk Ziegel & Co. does not.