Two leading US banks have reported a substantial increase in profits during the first three months of the year.

Citigroup and Bank of America, the biggest and third-biggest banks in the US, have seen double-digit growth in earnings, despite much gloom over the sluggish economy.

The news cheered investors, who have been desperate for signs that companies are starting to rebuild their operations after a period of retrenchment.

But the success of the banks was more due to consumer borrowing - itself fuelled by falling interest rates - than an increase in company activity.

Stock markets were still in a churlish mood, refusing to translate the profit gains into higher share prices.

Argentina fall-out

Citigroup saw its net profits rise to $4.8bn in the first quarter of the year, a rise of 25% over the same period of 2001.

"Our businesses once again delivered exceptional results in the face of difficult economic conditions," said the group's chairman and chief executive Sandy Weill.

But despite the upbeat statement, the group's results fell short of targets, owing to losses in Argentina.

Argentina has defaulted on government debt and devalued the peso, leaving banks with loan and currency losses.

Thin merger activity

Bank of America reported profits of $2.2bn, 14% higher than the previous year.

Strong consumer and commercial banking profits helped offset a decline in corporate and investment banking.

The slowdown of the US economy has been denting banking profits. owing to a lack of stock market trading and merger activity.

Shares in both banks drifted lower on general concerns about the health of the sector.

By 1420 GMT, Citigroup had moved 1.7% lower and Bank of America was down 1.3%.