NEW YORK (CNNMoney.com) - Lehman Brothers may be touting its strength across-the-board after posting a solid second quarter, but investors are opting for caution as global markets continue to slide and concern about rising interest rates pressures the company's stock.

Lehman (down $2.65 to $62.96, Research), the fourth-largest U.S. investment bank by market capitalization, reported fiscal second-quarter earnings of $1 billion, or $1.69 a share, up from $683 million, or $1.13 a share, a year earlier. The results handily beat Wall Street projections for a profit of $1.60 per share on $4.19 billion in revenue, according to earnings tracker Thomson First Call.

The year-earlier per share is adjusted to reflect a two-for-one stock split in the 2006 second quarter.

But investors weren't willing to take any bets on the company's stock, which has fallen 20 percent since hitting a 52-week high of $78 in late April.

Speaking on a conference call with analysts Monday morning, Lehman executives looked to assuage concerns among investors that rising rates would put pressure on the company's businesses, including its profitable investment banking division. But they admitted that investment banking could take a hit if the markets continue to head lower.

Chief Administrative Officer David Goldfarb told analysts Lehman's earnings were dependent on the global economy, global capital markets, and the firm's ability to expand its market and fee shares. Goldfarb said the company expects the global economy to grow 2.8 percent this year, while U.S. corporate earnings rise 8 percent and those in Europe increase by 9 percent, suggesting a solid global economic outlook.

He added that the merger and acquisition environment, which helped fuel some strength in the company's investment banking advisory operations, will continue to outperform.

"The volumes of global M&A will increase 30 percent from 2005 levels," he estimated, adding that Lehman Brothers was well-positioned to take advantage of that growth.

And despite the volatile market environment, Lehman executives said the company's trading operations were profitable in the second quarter. The company's equity capital markets unit soared, with revenue up 85 percent to $878 million as higher trading volume in Lehman's cash business and strength in its global derivatives and prime brokerage businesses fueled year-over-year growth.

Goldfarb said the firm is confident it will be able to grow on its own in 2006. To that end, he said the company will expand its global headcount by 10 percent, or roughly 2,000 employees.

"Our firm has shown the ability to consistently grow, and we continue to grow our capacity," he said.

But despite the robust expectations, the company refrained from providing a specific outlook for the third quarter, and Goldfarb cautioned that the positive sentiment is based on estimates the Federal Reserve will raise rates to 5.5 percent. Interest rates are currently at 5 percent.

He warned analysts that if inflation "gets overheated, if the central banks went much more aggressively" that could slowdown the company's growth prospects.

And he added that while Lehman clients have weathered the current market downturn and the investment banking division has shown solid growth, if the market continues to decline and the "wild card" of inflation becomes an issue, the company "certainly could see some transactions falling off the table."

And that caveat was enough to strike fear in the hearts of investors, sending shares lower Monday.

But some analysts continued to stand by the company's financial prospects. David Trone, securities industry analyst at Fox-Pitt Kelton, said "unless the correction graduates to bear-market, future results may be a bit better than we expected."

Trone raised the company's estimates for the second half to $3.41 a share from $3.29 and lifted 2007 earnings estimates to $7.36 from $7.11. He also raised Lehman Brothers' price target to $70 from $68.

Lehman Brothers became the first in a line of investment brokerage houses expected to post earnings this week and its stock slide led the decline in the sector.

All eyes are now on Goldman Sachs (down $2.17 to $147.72, Research), which will report its second-quarter earnings Tuesday. Goldman Sachs has been in the spotlight in recent days after CEO Henry Paulson accepted the nomination to the post of Treasury Secretary, succeeding John Snow.

Goldman Sachs is expected to report second-quarter earnings of $4.19 a share, according to Thomson First Call.

Bear Stearns (down $3.21 to $133.14, Research) will follow Thursday with its second-quarter report. A consensus of analysts expect the company to post earnings of $3.12, Thomson First Call reported.

Fox-Pitt Kelton's Trone doesn't own shares of Lehman Brothers and the firm doesn't have an investment banking relationship with the company.

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