UPDATE 1-KBW posts Q2 profit above Street view

* Q2 oper EPS $0.26 vs est $0.19

* Q2 EPS $0.22 vs loss/shr $0.32, last year

* Investment banking revenue fell 10 pct

July 30 (Reuters) - Boutique investment bank KBW Inc (KBW.N) swung to a quarterly profit that topped market expectations boosted by robust principal transactions due to improved trading environment and stabilization of asset valuation.

The investment bank, which specializes in financial services sector, said second quarter profit fell to $7.2 million, or 22 cents a share, from $9.7 million, or 32 cents a share, a year ago.

The company reported operating earnings of 26 cents a share.

Analysts on average had expected the company to earn 19 cents a share, excluding items, according to Reuters Estimates.

Investment banking revenue fell 10.5 percent to $42.3 million. Principal transactions was $23.6 million, compared with a loss of $29 million, last year.

"The stabilization of credit markets and improved equity markets have also benefited our trading activities as more investors and financial institutions have become more confident with current pricing levels of different asset classes," Chief Executive John Duffy said.

Shares of the company closed at $28.73 Wednesday on the New York Stock Exchange. (Reporting by Supantha Mukherjee in Bangalore; Editing by Savio D'Souza)