UPDATE 4-CME profit beats Street; now battling CFTC limits

* EPS $3.37 vs $3.93

* Revenue down 14 percent to $648 million

* Management to battle possible curbs on speculation

* Shares up 1.2 percent on the Nasdaq (Adds executive interview, CDS clearinghouse)

By Jonathan Spicer

NEW YORK, July 23 (Reuters) - CME Group Inc's (CME.O) quarterly profit slid 15 percent on slumping trading volume, although cost cuts and higher fees helped the world's top derivatives exchange operator handily beat Wall Street expectations.

Shares of the Chicago Mercantile Exchange parent company, however, were responding as management tried to assure investors it would fight hard to convince regulators there is no need for new limits on commodities speculators.

The shares edged up 1.2 percent by midday, still down 8 percent since July 7, when the head of the U.S. Commodity Futures Trading Commission said it was considering limits on speculation in energy and commodity markets.

"When you see an announcement ... about potentially limiting the number of participants in one of your sectors that spits out 24 percent of your revenue, investors would rightfully get nervous," CME Group Executive Chairman Terry Duffy said in an interview.

The CFTC proposal would set position limits on futures contracts, and is part of broader government moves to stabilize markets. CME Group repeated Thursday such a move would in fact drive traders overseas, leaving U.S. markets more volatile.

Meanwhile, the financial crisis has taken a toll on CME's average daily volume, which fell 19 percent in the second quarter from a year earlier. But analysts cheered a 13 percent drop in expenses and a 5 percent jump in the company's closely-watched rate per contract.

Adjusted to include the 2008 purchase of NYMEX, CME Group earned $224.4 million, or $3.37 per share, down from $264.4 million, or $3.93 per share, a year earlier. Revenue dropped 14 percent to $647.8 million.

On average, analysts polled by Reuters Estimates expected the company to earn $3.23 per share on $649 million in revenue.

"It's a solid beat for a company that usually comes in very close to expectations," said Edward Ditmire, analyst at Fox-Pitt Kelton.

"It's definitely a pleasant surprise that they are able to rein in costs a little bit and maintain the margins, even though the revenue line isn't growing the way we're used to."

SIGNS OF STABILITY

CME Group, which also runs the Chicago Board of Trade, said signs of economic stability, such as the rebound in stock markets and more liquidity in derivatives markets, helped boost June volumes in interest rates, foreign exchange and agriculture contracts.

"There are still some choppy waters but I do think we've seen some things in the last 90 days that have been positive," Duffy told Reuters, declining to predict when volumes would emerge from a multiquarter slump.

Clearing and transaction fees, accounting for more than 80 percent of total revenue, dropped 16 percent as average daily volume stayed about on par with the previous quarter at 10.4 million contracts. Growth in higher-priced commodity products helped drive up contract rates.

The volume of interest rate contracts, CME's largest product group, has grown the last three quarters, but was still down 32 from last year. Equity-based e-mini contracts, the No. 2 product group, has dropped the last three quarters.

CME shares were up $3.28 to $275.98 on the Nasdaq at midday.

"(T)he market will only give the company limited credit for beating on costs, as the focus remains on macro issues, such as regulatory changes, emerging competition, and a cloudy outlook on volume growth," Barclays Capital analyst Roger Freeman said in a note to clients.

The exchange is facing increased competition from upstart futures exchanges ELX or NYSE Euronext's (NYX.N) Liffe. But the question of speculators dominated a company conference call.

CME Group, like U.S. rival IntercontinentalExchange Inc (ICE.N), says speculators play a minimal role in driving the price of oil, for example, arguing that commodity prices are primarily determined by supply and demand.

CME CEO Craig Donohue is scheduled to participate in hearings beginning next week.

Elsewhere, management has not set a launch date for its credit default swap clearinghouse, which received regulatory approval in March. ICE began clearing CDS in early March. (Reporting by Jonathan Spicer; Editing by John Wallace, Derek Caney and Gunna Dickson)