* Analysts laud Canaccord, GMP results
* Strength seen in capital markets, investment banking
(Changes headline, adds closing stock prices)
By Pav Jordan
TORONTO, Aug 6 (Reuters) - Two leading Canadian investment dealers said on Thursday quarterly profits tumbled but analysts said the results showed both had cut costs while taking advantage of stronger financial markets.
Vancouver-based Canaccord Capital Inc CCI.TO and GMP Capital Inc (GMP.TO) said quarterly earnings dropped nearly by half, but revenue exceeded forecasts as global financial markets steadily improved during the three months ended June 30.
Both companies, bruised by global economic downturn and the ensuing plunge in stock valuations, turned their attention to controlling costs in recent quarters even as they took advantage of healthier markets.
Toronto's main stock index .GSPTSE has bounced from March lows to show a 20 percent gain on the year as optimism about economic recovery steadily rises.
"What you are seeing is both of these players benefiting from a more positive capital markets environment as well as bottom line benefiting from increased operating leverage given the fact that they've done a very good job of controlling and maintaining expenses," said Dundee Capital Markets analyst John Aiken.
Analysts envision further solid performances from the companies, as long as they continue to control expenses and generate new business.
GMP Capital, which last month said it merged its wealth management division with Richardson Partners Financial Ltd, reported a 49 percent drop in earnings as it took charges tied to its conversion from an income trust to a corporation.
The Toronto-based company said second-quarter earnings fell to C$8.1 million ($7.56 million), or 12 Canadian cents a share, in the second quarter ended June 30, from C$15.7 million, or 25 Canadian cents, in the same quarter a year ago.
Stripping out the tax costs of converting to a corporation, profit rose to C$26.4 million from C$16.8 million, while second-quarter revenue rose 13 percent to C$100.8 million.
"The result breaks a streak of six consecutive quarters of (year-over-year) top-line decline for GMP," Macquarie Securities analyst Sumit Malhotra said in a research note, adding that revenue came in well above forecasts.
Even so, GMP shares dropped 8.8 percent on the day to C$11.52 per share. Analysts said the drop mostly reflected a resettling of valuations after the Richardson deal.
Canaccord Capital Inc profit fell 45 percent to C$9.1 million ($8.5 million), or 16 Canadian cents a share, in its fiscal first quarter ended June 30, from C$16.5 million, or 31 Canadian cents, in the same quarter a year earlier.
The results "represent an absolutely stunning turnaround from just a few quarters ago, reflecting both improving market conditions and the active cost management undertaken," Dundee Capital Markets analyst John Aiken said in a report.
Revenue fell more than 20 percent to C$137.5 million, but that was still better than what analysts had forecast.
"We view this as a good result for Canaccord -- revenue was stronger-than-expected, the level of aggregate operating expenses less incentive compensation (AOELIC) continues to decline, and the company earned through a higher tax rate," said Macquarie's Malhotra.
Canaccord stock dropped 1.54 percent in light trading, down with other financial stocks on the Toronto Stock Exchange, analysts said.
Reporting by Pav Jordan in Toronto; Editing by Frank McGurty