By Tom Sims

FRANKFURT (Reuters) - A bigger than expected loss in the fourth quarter and weakness at its investment bank overshadowed the first annual profit in four years for Deutsche Bank.

Germany's largest lender has been trying to turn itself around under a new leadership, but has faced a series of hurdles, including allegations of money laundering, ratings downgrades and failed stress tests.

Deutsche has also become the subject of rampant merger speculation, and Friday's earnings figures underscore that the company still has a long way ahead to post a sustainable profit.

Time is running out for the bank to turn around on its own, making a merger with rival Commerzbank more likely, two people with knowledge of the matter said on Thursday.

Results were a mixed bag, with Deutsche posting a full-year profit of 341 million euros (299 million pounds), compared with a net loss of 735 million euros in 2017.

"Our return to profitability shows that Deutsche Bank is on the right track," said Chief Executive Christian Sewing, who took over last April and has embarked on plans to cut more than 7,000 jobs in an overhaul of the bank.

"In 2019, we aim not only to save costs but also to make focused investments in growth," he said.

PROFIT GROWTH FORECAST

Sewing, in an interview with Reuters TV, said he was optimistic that profit would grow in 2019.

But it was not all good news.

On the downside, the fourth-quarter net loss of 409 million euros was greater than the 268 million euros expected on average by analysts, according to a consensus report on the bank's website.

The quarter was marked by continued weakness in its key trading business. Revenue at its cash-cow bond-trading division plunged 23 percent.

For the investment bank as a whole, revenue dropped 5 percent in the fourth quarter. Executives said that negative headlines about police raids on the bank in November dented business.

"The weakness in investment banking is striking," said Alexandra Annecke, fund manager with Union Investment, which holds the bank's stock.

"It needs to finally be possible to stop the loss of market share," she said.

Analysts at Citigroup said they feared that Deutsche's investment bank would continue to lose ground to competitors. A downgrade in market expectations for future earnings is possible, they added.

MERGER SPECULATION

The bank's shares lost more than half their value in 2018, though they have recovered slightly over the past month. They opened slightly higher early in Frankfurt but were down 3.1 percent by 1200 GMT.