LONDON (Reuters) - Barclays Plc beat forecasts with a near doubling of profits in 2009 to £11.6 billion ($18.20 billion), cheering investors with an improved balance sheet and boosting shares across the sector.

Shares in the bank, the first UK lender to report earnings, jumped over seven percent on the bumper profit and lifted its rivals, as investors welcomed its relatively optimistic outlook for 2010 and good news on bad debts and capital ratios.

Britain's second-largest bank by market value avoided a bailout during the crisis but has still been hit by a backlash over banker pay, and yesterday said it had reined in payouts, with its two top executives declining their cash bonus.

Its investment bankers will receive average pay of £191,000 for 2009, including an average bonus of £95,000.

With a compensation ratio of 38 percent for its investment banking arm, down from 44 percent, Barclays is broadly in line with peers; just above Wall Street giant Goldman Sachs but below European rival Deutsche Bank's 40 percent.

"The bond of trust between banks and stakeholders has been damaged by the credit crunch and the economic recession. That bond must be restored to health by how banks behave — how we lend, and how we pay," said chief executive John Varley.

Barclays ranks as the top earning European bank for last year, with profits up 92 percent from £6.1 billion in 2008 — swollen by a £6.3 billion gain on the sale of its Barclays Global Investors asset management arm — and beating a forecast of £11.2 billion from a Thomson Reuters I/B/E/S poll.

Underlying profit, stripping out the BGI gain and other one-off items, more than trebled to £5.6 billion, which analysts said was about five percent ahead of expectations. Earnings at Barclays Capital, the investment bank arm headed by Bob Diamond, jumped 89 percent to £2.5 billion, thanks to its purchase of the US operations of Lehman Brothers, expansion in Europe and Asia, and a revival in capital markets.

BarCap said its October to December income was virtually flat on the previous quarter, faring better than rivals who had on average seen a slowdown of about a third. Both JP Morgan and Goldman Sachs indicated weaker conditions at the end of 2009.

"They have surprised positively in revenues, particularly in investment banking," said Arturo de Frias, analyst at Evolution.

"The stock was trading at such low prices because of capital concerns, liquidity concerns, earnings concerns. I think these results are proof they can do much better than what the market expects," he added.

Barclays said it would pay £1.5 billion in discretionary cash payments for 2009 and a further £1.2 billion of long-term awards that vest over three years and can be clawed back.