Macquarie outlook disappoints

But Macquarie shares had risen 3 percent over the past month, outperforming an 8 percent slide in the broader market <.AXJO>.

Macquarie's muted quarterly trading update comes amid profit upgrades by financial sector peers such as AXA Asia Pacific Holdings and No.2 lender Commonwealth Bank of Australia (CBA) as Australia's economy rebounds from a slowdown.

CBA is set to report its highest half yearly profit growth in a decade on Wednesday.

"The reality of earnings is going to come back to haunt the market. All the global investment banks have been belted, and this (Macquarie) has outperformed in recent weeks, so it's coming back to the pack," said George Kanaan, UBS Research sales desk head.

M&A CHANCES SHRINKING

Macquarie, which raised $400 million through an equity offering in May and $1 billion through a bond issue last month, reported excess capital of about A$4.5 billion. But it gave no update on its plans for the excess capital, merely reiterating its need for a strong balance sheet.

It was cautious about market conditions.

"Economic conditions continue to trend back to normal but strong market conditions experienced in the first half have moderated in certain areas including Australian equity capital markets and credit businesses," CEO Nicholas Moore said in a statement.

Macquarie, which has used the global financial crisis to buy four North American businesses for about A$1 billion, also said acquisition opportunities are likely to shrink going forward.

Moore declined to comment on market speculation of a bid for RBS Sempra, a commodities joint venture between Royal Bank of Scotland and Sempra Energy . "I think with the world going back to normal, which seems to be the case at the moment, you would expect the number of acquisitions to be trending back towards normal," he told an analysts' briefing.