GLOBAL banking company HSBC overcame "challenging" conditions to post half-year figures ahead of City expectations.

Pre-tax profits in the six months to June 30 reached £3.77bn, compared with £3.6bn a year earlier.

Shares lifted three per cent in early trading as the bank showed that focusing on improving operating margins helped it beat tough comparative figures from last year.

But Sir John Bond, chairman, warned the outlook for the financial services sector remained unclear.

He said: "While the economic environment will remain challenging, we have positioned our business conservatively."

The bank, which has operations across Europe, North America, Asia and Latin America, said low interest rates and resilient customer spending had helped offset the effect of weaker investments in the corporate sector.

In the UK, pre-tax profits lifted 19 per cent to £1.24bn, with operating profits at the core UK banking arm broadly unchanged at £768m.

That followed a £45m drop in revenues as the bank faced up to increased competition with a series of pricing and rate changes.

HSBC radically changed its mortgage pricing policy in July 2000 and said it had seen the benefits, with a 11 per cent increase in its mortgage book.

The bank also took a £26m hit from its decision not to charge non-HSBC customers for using its ATM cashpoint machines.

HSBC added that First Direct, the telephone banking business launched by the former Midland Bank, had seen an encouraging increase in online use.

First Direct generated a pre-tax profit of £16m, an increase of eight per cent on the previous half-year.