NEW YORK (Reuters) - Goldman Sachs Group Inc said quarterly earnings surged 33 percent on strong trading results, trouncing expectations and continuing an extraordinary rebound from the near meltdown of the US banking industry last fall.

Just nine months after the US Treasury bailed out the nation's largest banks with $125 billion of taxpayer money, Wall Street's biggest surviving securities firm easily topped analysts' estimates thanks to savvy trading in improving markets.

Goldman also blew the lid off compensation. The bank set aside $6.65 billion for salary, bonuses and benefits in the quarter, up by nearly half from the quarter ended in May last year. That puts the average Goldman employee on pace to earn more than $900,000 this year.

The US government wanted "to make sure that the banks are making money, so they do make money", said Francis Campeau, a broker at MF Global Canada in Montreal. "The flip side is now one could argue they're making too much."

Goldman yesterday reported net income for common shareholders of $2.7 billion, or $4.93 a share. That compares with $2.05 billion, or $4.58, in the quarter ended May 30, 2008, before the bank switched to a calendar-year reporting schedule.

Analysts on average had forecast earnings of $3.49 a share, according to Reuters Estimates.

Goldman shares were up 1.3 percent in morning trade on the New York Stock Exchange after rising two percent on Monday. The shares are up nearly 80 percent this year, compared with a 24 percent rise in the NYSE Arca Securities Broker/Dealer index.

Goldman, the first major US bank to report second-quarter results, said trading income nearly doubled from a year ago, while its equity underwriting business produced record revenue of $736 million. Goldman's traders thrived in an environment of wider price swings and fewer rivals.

"There's less competition out there," chief financial officer David Viniar told reporters in a briefing.

The financial crisis wreaked havoc on Wall Street last year, collapsing Bear Stearns, sending Lehman Brothers into bankruptcy, and forcing Merrill Lynch into a shotgun wedding with Bank of America Corp.

Goldman's second-quarter investment banking revenue of $1.44 billion was down 15 percent from a year ago, but rose 75 percent from the first quarter.

"They look like a blowout to me, but I don't think it should be a big surprise to anyone," said Keith Davis, an analyst at Farr, Miller & Washington. "The environment is very conducive to the type of things they do. Spreads are very wide, fixed-income and equity issuances have been pretty strong." William Smith, chief executive of Smith Asset Management, said, "Things are very fragile, but they manage to make money in all environments, which is what you're supposed to do."

Goldman has come under fire for its government connections and fat-cat profits, seemingly sailing through a deep recession shortly after accepting $10 billion of taxpayer bailout money and benefiting from a host of other government programmes.

Smith said the bank deserved applause for its performance. "Goldman should be celebrated, not demonised," he said.

Second-quarter results were tempered by a one-time $426 million charge related to Goldman's repayment of the $10 billion government bailout. Viniar told reporters there was "no timeline" for the bank to buy back stock warrants issued to the government under the Troubled Asset Relief Programme, or TARP.