Bank of America shares recover from 25-year low

A Bank of America sign is seen in the Northern Virginia town of Leesburg, January 18, 2009.

NEW YORK (Reuters) - Bank of America Corp (BAC.N) shares rose nearly 3 percent on Thursday, retreating from 25-year lows on talk that Washington's rescue plan for banks may include suspension of a key accounting rule.

Earlier in the session, Bank of America's shares plummeted 20 percent on swelling fears about losses tied to a bad economy and its acquisition of Merrill Lynch & Co, adding to pressure on Chief Executive Kenneth Lewis.

But talk of suspending mark-to-market accounting lifted the bank's shares around the middle of the session. Bank shares broadly rose on Thursday, although Wells Fargo & Co (WFC.N) ended 6.8 percent lower.

"The notion that you can suspend this mark-to-market provision, which was established after Enron, as a way of halting the slide in the value of financials is at the fundamental core of putting on the brakes," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

"The market reaction is a barometer of how well (the suspension) could impact market psychology and market value."

Bank of America's shares fell as low as $3.77 before finishing up 14 cents at $4.84. The bank's shares had fallen for five days prior to Thursday.

Also helping the bank's shares were regulatory filings late in the session that said Chief Executive Kenneth Lewis bought 200,000 Bank of America shares on Wednesday, and two directors bought shares Thursday.

"The market says if they're confident then that's a good thing," said Malcolm Polley, chief investment officer of Stewart Capital Advisors.

The cost of protecting the bank's debt against default in the credit default swaps market fell 0.05 of a percentage point to 2 percent, or $200,000 a year for five years, for every $10 million of principal protected.

Not everyone is convinced the rally in Bank of America's shares is sustainable.

"There's still the undercurrent of doubt as to whether Lewis is the right man," said David Dietze, chief investment officer of Point View Financial Services in Summit, New Jersey.

Scott Silvestri, a Bank of America spokesman, declined to comment.

WELLS FARGO

Wells Fargo & Co's shares slumped, falling as much as 15.9 percent before taking back some losses to close the day at $16.27.

Both Wells Fargo and Bank of America made major acquisitions late last year that many investors now expect to drive further losses.

Wells acquired Charlotte-based Wachovia Corp, which like Merrill had tens of billions of dollars of toxic mortgages and other debt on its balance sheet.

"Folks have not been rewarded for sticking around with uncertainty in these markets," noted Ben Wallace, an analyst at Grimes & Co in Westborough, Massachusetts, which owns Bank of America shares.

(Reporting by Elinor Comlay and Jonathan Stempel; Editing by John Wallace, Brian Moss and Matthew Lewis)