By Oliver Hirt and Tom Sims

ZURICH (Reuters) - UBS posted a smaller-than-expected quarterly profit as turmoil in financial markets hurt its investment banking and wealth management businesses, with some analysts predicting the Swiss bank will see harsh conditions in the second half.

The Zurich-based bank kicks off a round of earnings by major lenders across Europe, where investors are watching for signs that a weaker economy, higher interest rates and the war in Ukraine are weighing on their operations and outlooks.

UBS's net profit in the three months through June rose 5% to $2.1 billion. That lagged expectations for a 19.8% rise to $2.4 billion, in a poll of 19 analysts compiled by the bank. Shares fell more than 9%.

GRAPHIC - UBS quarterly earnings

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"The second quarter was one of the most challenging periods for investors in the last 10 years," Chief Executive Ralph Hamers said. He said the operating environment in the second half of the year "remains uncertain" and that "sentiment remains subdued" so far in the third quarter.

The UBS update came after some U.S. rivals earned less money overall in the quarter, due to drops in dealmaking and sales of investment products. JPMorgan Chase & Co and Morgan Stanley both reported that investment banking revenues more than halved.

Earnings at UBS were helped by the sale of a real estate joint venture in Japan that yielded a one-off gain of more than $800 million.

UBS shares traded 9.3% lower late on Tuesday, extending a morning sell-off. They are down 10.6% so far this year, but have outperformed a 23% fall in a broad index of European banks.

"Today marks a setback in our view for the investment case, and demonstrates the extent to which UBS relies upon a more favourable market backdrop to achieve its financial targets," wrote analysts at Citi, who rate UBS a "buy".

ZKB analyst Michael Klien said in a note uncertainties in financial markets related to the war, high energy prices and the COVID-19 pandemic "could also affect the level of customer activity" in the third quarter.

ON THE SIDELINES

Its investment banking business saw revenue fall 14% to $2.1 billion from $2.5 billion a year ago. Analysts had expected $2.3 billion.

Advisory revenue was down 30% and capital markets revenue down 71%, which the bank attributed in part to lower business from initial public offerings.

At its wealth management division, its biggest business, revenue was $4.7 billion, down from $4.8 billion a year ago and versus expectations for $4.8 billion.