Author: Manya Saini and Niket Nishant

(Reuters) - Several U.S. banks reported higher fourth-quarter profits on Friday, extending the sector's winning streak as a rebound in capital markets cushioned the blow from weak loan demand.

Investment banking and trading, long considered the home of Wall Street giants such as JPMorgan Chase & Co. and Goldman Sachs, are becoming increasingly important to mid-sized banks as a strong trading environment offers the prospect of lucrative fees.

"Dealing activity is back with a vengeance," said Danni Hewson, head of financial analysis at AJ Bell.

A boost in investment banking has helped mid-sized banks cushion the blow from falling demand for loans as rising interest rates hobble borrowers.

"The prospect of 2025 will continue to excite banking bosses if the incoming president delivers on his promises of deregulation and lower taxes," Hewson said.

Citizens Financial, Truist Financial, Huntington Bancshares and Regions Financial all beat estimates for quarterly profits, mirroring outperformance from larger peers earlier this week, according to data compiled by London Stock Exchange Group (LSEG).

Truist shares were up nearly 3% in premarket trading, Regions Financial shares were up 0.7% and Huntington shares were up 1.2%.

U.S. Bancorp and M&T Bank also reported higher fourth-quarter profits on Thursday, driven by higher fee income.

"Trump Collision"

Analysts predict a "Trump rise" for investment banking under the new administration due to corporate tax cuts and loosening regulations, which could boost executives' confidence in pursuing deals.

A series of interest rate cuts by the Federal Reserve have also bolstered the resilience of the U.S. economy, even as some worry that President-elect Trump's tariff proposals could lead to a spike in inflation.

"Questions may abound about how long this run can last and whether Donald Trump's form of isolationism is a blessing or a curse, but with so many Wall Street banks posting strong and even record-breaking profits, no one has really considered the answers Not yet,” Hewson added.

Still, lending and leasing at Citizens, Truist and Regionals declined and will likely remain depressed unless rates are lowered further.

However, the Fed expects to cut interest rates this year by less than previously expected. Inflation data released earlier this week showed U.S. consumer prices rose at the highest level in nine months in December, which is likely to reinforce that view.

(Reporting by Manya Saini and Niket Nishant in Bengaluru; Additional reporting by Arasu Kannagi Basil, Atharva Singh, Jaiveer Singh Shekhawat, Vedant Vinayak Vichare and Prakhar Srivasatava; Editing by Maju Samuel)