(Recasts throughout to add details on earnings, poll comparisons, comments)

By Guillermo Parra-Bernal

SAO PAULO, Aug 5 (Reuters) - Profit at Grupo BTG Pactual SA surprisingly rose to the highest in over two years in the second quarter even after Latin America's largest independent investment-banking firm produced a mixed performance in some revenue and expense lines.

Under the stewardship of Chief Executive Officer André Esteves, BTG Pactual is expanding globally in reinsurance, commodities trading and wealth management, weathering the impact of sluggish capital markets activity and declining business confidence in Brazil - its home turf.

São Paulo-based BTG Pactual earned 962 million reais ($424 million) in the quarter, compared with the average 909 million reais estimate in a Reuters poll of four analysts. The result, which was up 15.6 percent on a quarter-on-quarter basis, was BTG Pactual's highest profit reading since the last quarter of 2011.

Revenue from financial advisory nearly tripled from the prior three months as bond offerings recovered and Brazil had its largest share offering in about four years. Sales and trading income fell 26 percent sequentially, but remained a third above last year's quarterly average in the wake of Esteves' drive to expand into physical commodities.

The main aspect during the quarter was BTG Pactual's purchases of reinsurer Ariel Re Holdings Ltd and BSI, a Swiss-based wealth management firm formerly owned by Assicurazione Generali SpA. Esteves is pinning hopes on geographical and segment diversification to provide BTG Pactual a buffer against flagging activity in core markets.

"Even as we continue to operate in a slow growth environment in Latin America, especially in Brazil, our business lines presented solid performance in the quarter," Esteves said in a statement. "Our efforts to diversify and the reach of our platform have paved the way for growth in challenging times."

Taxes fell during the quarter, propping up profit. Principal investments - or income from investing the bank's own money in hedge funds, private-equity investments and real estate - unexpectedly posted a shortfall for the second quarter in a row.

Management will discuss results with investors in a conference call on Wednesday.

Total revenue rose 2.1 percent on a quarterly basis to 1.742 billion reais, yet below the 1.857 billion reais expected in the poll. Return on equity, or a measure of profitability that gauges how well the bank spends shareholder money, ended the quarter at 22.4 percent, compared with the poll's estimate of 21 percent.

Operating expenses rose 13.5 percent to 737 million reais, in line with the poll, after bonus and compensation payouts rose alongside surging general and administrative expenditures.

($1 = 2.27 Brazilian reais) (Reporting by Guillermo Parra-Bernal; Editing by Lisa Shumaker and Ken Wills)