Encouraged by the strong private banking figures, UBS shares jumped 6.0 percent to 12.00 francs by 5:21 a.m. EDT, outpacing a 0.8 percent rise in the broader European banking sector .SX7P and hitting its highest in almost a month.

Switzerland's biggest bank, which is scaling back its risky investment bank which suffered huge losses in the credit crunch to focus on private banking, said the latter unit won a net 6.7 billion Swiss francs ($7.4 billion) in fresh assets in the first quarter and hiked margins.

"Wealth management net new money and gross margins were slightly better than we might have expected post the Credit Suisse results, which arguably gives the (UBS) results a better 'quality' feel than those of peers," said Nomura analyst Jon Peace, who rates UBS stock a "buy."

Last week, Credit Suisse Group AG (CSGN.VX) reported a slim profit for the quarter amid a better-than-expected showing from its fixed-income division.

Under Chief Executive Sergio Ermotti, UBS is shrinking its balance sheet to help meet Switzerland's tough new capital rules to make the country's banks more robust after the financial crisis. UBS said it is on track to achieve its target of 2 billion francs of cost savings by the end of 2013.

The strong private banking numbers also reflect UBS's recovery from its difficulties with the U.S. tax authorities which whom it reached a settlement in 2009, admitting it helped wealthy Americans dodge taxes.

UBS, also trying to recover from a rogue trading scandal involving London-based Kweku Adoboli, accused of unauthorized deals that cost the bank $2.3 billion, was cautious on the outlook for the second quarter.

CONTINUED HEADWINDS

It said economic worries rattling wealthy clients such as the euro zone debt crisis and the U.S. deficit were likely to take a toll.

"Failure to make progress on these key issues would make further improvements in prevailing market conditions unlikely and would have the potential to continue the headwinds for revenue growth, net interest margins and net new money," UBS said in a statement.

But the bank was confident its private banking arm would still attract fresh inflows, an important indicator for future group revenue.

UBS's first-quarter net profit fell to 827 million francs from 1.81 billion a year earlier. Analysts had on average penciled in a net profit of 1.11 billion, a Reuters poll found.

UBS cut risk-weighted assets by roughly 30 billion francs in the quarter, after chopping 20 billion in the fourth quarter, putting it ahead of its reduction target for this year.

In November, UBS told investors it would cut risky assets at its securities unit by 145 billion francs, a response to the new rules that make it more costly to take on higher-risk business.

UBS put aside an undisclosed sum towards a year-end dividend, financial head Tom Naratil told journalists. The bank paid its first shareholder dividend since the financial crisis last year.

It also put 579 million more into its bonus pool for staff than last quarter. UBS is likely to face a grilling from investors on pay at Thursday's annual shareholders' meeting.

UBS also said it had taken a charge of 1.16 billion francs on its debt, which contributed to a pretax loss of 373 million francs at its investment banking arm.

Banks have to record accounting gains if the value of their own debt falls, since it becomes theoretically cheaper to repurchase it. Conversely they have to book losses if the value of the debt rises.

($1 = 0.9086 Swiss francs)

(Editing by David Cowell and David Holmes)

• A Permanent Economic Emergency