By Manya Saini and Niket Nishant

Jan 17 (Reuters) - A raft of U.S. banks reported higher fourth-quarter profits on Friday, extending a winning streak for the industry as an upswing in capital markets alleviated a hit from weaker loan demand.

Long believed to be the stronghold of Wall Street heavy hitters such as JPMorgan Chase JPM.N and Goldman Sachs GS.N, investment banking and trading have become increasingly vital for mid-sized banks as a robust dealmaking environment offers lucrative fee prospects.

"Dealmaking is back with a vengeance," said Danni Hewson, head of financial analysis at AJ Bell.

The boost from investment banking has helped mid-sized banks cushion the blow from lower loan demand as elevated interest rates deter borrowers.

"If the incoming president follows through on promises for deregulation and lower taxes, the outlook for 2025 will continue to generate a lot of excitement among banking bosses," Hewson said.

Citizens Financial CFG.N, Truist Financial TFC.N, Huntington Bancshares HBAN.O and Regions Financial RF.N all surpassed expectations for quarterly profits, according to data compiled by LSEG, mirroring the stellar results of their bigger peers earlier this week.

Truist shares were last up nearly 3% before the bell, while Regions Financial traded 0.7% higher and Huntington climbed 1.2%.

On Thursday, U.S. Bancorp USB.N and M&T Bank MTB.N also posted higher fourth-quarter profit, driven by higher fee income.

'TRUMP BUMP'

Analysts predict that the investment banking sector will see a "Trump bump" under the new administration due to corporate tax cuts and relaxed regulatory oversight that could increase executives' confidence to pursue deals.

A series of rate cuts by the Federal Reserve has also cemented the resilience of the U.S. economy, though some are worried that President-elect Trump's tariff proposals could lead to a spike in inflation.

"Questions may abound about how long the run can last and whether Donald Trump's form of isolationism will be a boon or a curse, but as a host of Wall Street banks delivered robust and even record-breaking profits, no one is really thinking about the answers just yet," Hewson added.

Still, loans and leases at Citizens, Truist and Regions fell and could remain depressed unless rates are lowered further.

The Fed, however, has projected fewer rate cuts this year than previously expected. Inflation data released earlier this week, which showed that U.S. consumer prices increased by the most in nine months in December, could reinforce that view.

(Reporting by Manya Saini and Niket Nishant in Bengaluru; Additional reporting by Arasu Kannagi Basil, Atharva Singh, Jaiveer Singh Shekhawat, Vedant Vinayak Vichare and Prakhar Srivasatava; Editing by Maju Samuel)

((Manya.Saini@thomsonreuters.com; X: manya__saini;))