April 17 (Reuters) - Custodian bank State Street STT.N on Thursday reported a 39% jump in first-quarter profit, benefitting from lower expenses and higher fees earned from managing client assets.

The bank's assets under custody and administration rose 6% to $46.7 trillion in the three months ended March 31 from a year earlier, driven by higher market levels and flows. Its total fee revenue climbed 6% to $2.57 billion in the quarter.

However, the turmoil in financial markets caused by the uncertainties around U.S. trade policy is expected to hit trust banks' fee income from servicing and asset management businesses.

Analysts say State Street is most exposed to the declining markets among trust banks, given that a bigger share of its revenue comes from servicing and asset management.

"The world's investors and the global economy are now navigating through a period of geopolitical and government policy uncertainty around trade, deficits, tax, and deregulation," CEO Ron O'Hanley said.

"The current environment provides a unique opportunity for us to demonstrate the strength and effectiveness of our value proposition to clients."

Analysts expect the impact to be more visible in the second quarter, given the lagged effect of market weakness.

State Street's expenses fell 3% to $2.45 billion in the first quarter, helped by the absence of a prior-year one-time charge.

Its quarterly profit rose to $644 million, or $2.04 per share, from $463 million, or $1.37 per share, a year earlier.

The bank's foreign exchange trading services revenue jumped 9.4% to $362 million in the quarter, boosted by higher market volatility.

Rival BNY BK.N last week beat quarterly profit expectations on higher interest income. Meanwhile, Northern Trust NTRS.O is set to report its results next week, winding up the earnings season for trust banks.

State Street's shares have plunged 19% this year, compared with a 10% slide in the benchmark S&P 500 index .SPX as of last close.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shreya Biswas)

((ArasuKannagi.Basil@thomsonreuters.com;))