NEW YORK, Jan 16 (Reuters) - CEOs of investment banking giants expressed optimism about a resurgence in capital markets when they reported fourth quarter earnings on Tuesday on an improving deal pipeline and U.S. economy, but also warned of risks that could disrupt a nascent recovery.

At Goldman Sachs, equities trading revenue jumped 26% in the fourth quarter versus a year earlier, sending shares up more than 1% in morning trading.

By contrast, trading revenue at rival Morgan Stanley was broadly flat, but investment banking revenue climbed 5%. Its stock fell more 3%.

Investors did not share executives' optimism. The KBW index of bank shares slid more than 1%.

"Market sentiment was most positive at the end of 2023 as inflation was going down, interest rate cuts were expected," said Brian Mulberry, client portfolio manager at Zacks Investment Management. "But now there is some realism seeping in and there are concerns if this year will pan out as expected."

Stock markets have recently bounced on expectations that the U.S. will avoid a recession as the Federal Reserve moves toward cutting interest rates later this year. Lower borrowing costs typically spur dealmaking and trading at investment banks.

While Goldman's trading revenue jumped, its investment banking fees fell 12% to $1.65 billion.

"Results were weighed down by headwinds in fixed income and advisory, but these were largely offset by double digit revenue growth in underwriting, equities and asset management," said David Fanger, a senior vice president at Moody’s Investors Service.

Meanwhile, Morgan Stanley's investment banking revenue climbed by more than its peers, and the bank entered the year with a more confident outlook, its new CEO Ted Pick told analysts on a conference call.

"Our base case for the coming year is constructive," he said, while citing two major downside risks: intensifying geopolitical conflicts and uncertainty over the path of the U.S. economy.

Global M&A activity fell to a decade low last year but some signs of a recovery appeared in the fourth quarter as deal volumes climbed 19%, according to Dealogic.

One-off charges and expenses subdued profits at other lenders including JPMorgan Chase, Bank of America , Citigroup and Wells Fargo.

The banks have been setting aside funds in the fourth quarter to refill the government's deposit insurance fund (DIF), which took a $16 billion hit after Silicon Valley Bank and two other lenders failed last year. (Reporting by Nupur Anand, Saeed Azhar and Tatiana Bautzer in New York; Editing by Lananh Nguyen and Marguerita Choy)