Jefferies (JEF) disclosed an in-line 21% slide in second-quarter profits on Tuesday due to slumping investment-banking revenue, but shares of the financial-services company rallied 5% as overall revenue topped forecasts.

Kicking off earnings season for the investment-banking sector, New York-based Jefferies said it earned $63.5 million, or 28 cents a share, last quarter, compared with $80.6 million, or 36 cents a share, a year earlier. Analysts had called for EPS of 28 cents.

Revenue slipped 2.2% to $706.6 million, surpassing the Street’s view of $681 million.

The midsize firm said its investment-banking revenue declined 9.6% year-over-year to $297 million, but that represented a 3.9% sequential rise. On the other hand, fixed-income revenue jumped 31.4% to $293 million.

“Our results reflect our continued strength in investment banking and the durability of our sales and trading platform despite the challenging market environment that again evolved during the quarter,” CEO Richard Handler said in a statement.

The markets applauded the results as shares of Jefferies rallied 4.96% to $13.75 Tuesday morning, putting them on pace to trim their 2012 decline of almost 5%.

Despite the intensifying eurozone debt crisis, Jefferies slightly ramped up on leverage during the quarter. The company’s leverage ratio rose to 9.8-1 from 9.5-1 in the first quarter.

Jefferies came under heavy pressure last fall in the wake of the MF Global collapse as bearish traders began to bet the firm could be next to succumb to the euro turbulence. Since then Handler has attempted to rein in risk to soothe shareholder concerns.

Next month second-quarter results are on tap from larger investment banks Goldman Sachs (GS) and Morgan Stanley (MS).

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