* Pretax profit 1.7 bln stg, excluding fines
* Investment bank revenues improve
* CET1 ratio sags to 12.7 pct on U.S. settlement costs
* CEO Staley "very comfortable" with outcome of investigation (Recasts, adds share price reaction, analyst comment)
By Lawrence White
LONDON, April 26 (Reuters) - Barclays said rising profits from its investment bank will be enough to restore capital levels depleted by misconduct fines in Britain and the United States, as the British lender announced a characteristically mixed set of first-quarter earnings.
The earnings came a week after Barclays announced Chief Executive Jes Staley would keep his job but face a fine following the results of a regulatory probe into his attempts to unmask a whistleblower.
Staley told reporters he is "very comfortable" with the results of that investigation when asked if he would challenge the findings, suggested he could move swiftly to pay the fine and try to put the matter behind him.
Barclays shares initially fell by more than 2.5 percent on Thursday morning as investors digested the bad news in the earnings report first but the shares then recovered.
That bad news included a core capital ratio that fell to 12.7 percent and a statutory loss for the quarter of 236 million pounds ($328.3 million), both driven by fines and legal costs from historic misconduct issues.
Barclays took a 1.4 billion pound hit from settling with the U.S. Justice Department over the sale of toxic mortgage-backed securities in the run-up to the 2007 financial crisis. Cover for claims against mis-selling of payment insurance products in Britain cost it a further 400 million pounds.
Barclays shares recovered partially to be up 0.6 percent by 0905 GMT as investors looked beyond the conduct costs to see an improved performance at its under-pressure investment bank, which executives said will prevent the need for a capital raise.
"We feel pretty comfortable, we generated 43 basis points of capital in this quarter alone... so to get back to 13 percent [core capital ratio] is relatively straightforward," the bank's finance director Tushar Morzaria told reporters on a conference call.
Analysts with both buy and sell recommendations on the stock found evidence in the results to support their ratings.
"Buy thesis is intact though we expect much 'weeping & gnashing of teeth' on the conference call around capital," said Joseph Dickerson at Jefferies.
Meanwhile Edward Firth at KBW, who has a sell rating on Barclays, called it a "poor set of results missing on all important lines."
Improved income at its investment bank helped Barclays report a better than expected first quarterly pretax profit of 1.7 billion pounds ($2.4 billion) excluding the legal and conduct charges, and the bank said it still intends to pay a dividend of 6.5 pence per share in 2018.
Barclays' International division, which contains its under-pressure investment bank, showed signs of improvement with a profit before tax excluding litigation costs of 1.4 billion pounds, better than the 1.1 billion pounds average of analysts' forecasts.
The end of the Staley probe and the U.S. settlement do not mark the end of the bank's legal and regulatory troubles. Barclays still faces charges by Britain's Serious Fraud Office over payments to Qatari investors during emergency fundraisings in 2008 that saved the bank from a state bailout.
With the announcement of Staley's reprieve from the harsher possible outcomes of the FCA probe, investors are likely to focus more than ever on their chief source of concern with Barclays, the performance of the investment bank.
Barclays said income from its markets business in the first quarter rose 8 percent compared with a year ago, or 21 percent in U.S. dollar terms as the bank suffered in comparison with U.S. peers from earning much of its revenues in sterling.
In a further sign of the confidence in its investment bank Barclays said it will re-open its Australian office, two years after the bank shuttered the bulk of its Asia-Pacific investment banking operation. ($1 = 0.7171 pounds)
Reporting By Lawrence White, additional reporting by Emma Rumney Editing by Sinead Cruise/Keith Weir