By Daniel Huang And Chelsey Dulaney 

State Street Corp. posted better-than-expected profit in its first quarter, driven by a surge in foreign-exchange trading and stronger fee revenue, but announced another addition to its legal reserves for currency-related claims.

Monetary policies abroad and diverging interest rate expectations for the U.S. relative to most other economies drove up foreign-exchange trading volume, helping offset the adverse impact of a stronger dollar, said Chief Executive Joseph L. Hooley in a news release.

For the first quarter, the Boston-based bank reported earnings of $377 million, up from $356 million a year ago. On a per-share basis, earnings rose to 90 cents from 81 cents a year earlier.

On an operating basis, profit was $1.17 a share. Revenue improved to $2.61 billion from $2.49 billion a year ago.

Analysts polled by Thomson Reuters estimated an operating profit of $1.05 a share and revenue of $2.67 billion.

State Street added a $150 million charge to its legal reserves for resolving outstanding claims related to foreign-exchange activities. In a conference call with analysts, Chief Financial Officer Michael Bell noted the possibility that a resolution couldn't be reached and that ultimate legal costs "may be much more."

These costs are "not insignificant," said Edward Jones analyst Jim Shanahan in a note, observing that the bank had contributed $330 million to legal reserves over the last three quarters. Shares of State Street were down 2% in morning trading.

Assets under custody and administration increased 3.7% to $28.5 trillion while assets under management increased to $2.44 trillion, up from $2.38 trillion a year ago. In State Street's trading-services business, revenue grew 28.1%, driven by a 51.5% surge in foreign-exchange trading.

Actions taken by central banks around the world to increase quantitative easing helped lift global equity markets and contributed to greater volatility in fixed-income and foreign-exchange markets, State Street said, driving higher deposits into the firm.

Despite the negative effects of a stronger dollar, net new business and stronger equity markets boosted servicing fees 2.8% to $1.27 billion and management fees 3.1% to $301 million.

Amid low interest rates, net interest revenue decreased to $546 million, from $555 million in the first quarter of 2014, and net interest margin continued to be squeezed, down to 1.01% from 1.24% a year ago.

Rival Bank of New York Mellon Corp. reached a $714 million settlement with regulators in March to resolve allegations of overcharging clients on currency transactions. State Street revised its 2014 fourth-quarter earnings in February to increase legal reserves by $65 million to resolve currency claims related to its custodial clients.

Peers BNY Mellon and Northern Trust Corp. both reported better-than-expected first quarter earnings earlier this week.

Write to Daniel Huang at dan.huang@wsj.com and Chelsey Dulaney at Chelsey.Dulaney@wsj.com

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