UPDATE 2-Marshall & Ilsley soars on narrower loss

* Shares close up 10.7 percent on results, credit quality

* Q1 net loss $140.5 million

* EPS 27-cent loss vs. Street view 40-cent loss

(Recasts with stock performance; adds byline, analyst)

By Maria Aspan

NEW YORK, April 20 (Reuters) - Marshall & Ilsley Corp MI.N reported a narrower-than-expected quarterly loss on Tuesday and evidence of stabilizing credit quality helped fuel a 10.7 percent rally in its shares.

The shares of Wisconsin's largest bank closed at $9.31, leading a group of regionals that were the best-performing bank stocks on Tuesday.

"Credit trends all move(d) in the right direction. ... This represented the third straight quarter of (nonperforming loan) improvement for the company," R. Scott Siefers, a managing director at Sandler O'Neill and Partners, wrote in a research note. "Even though there is plenty of work to be done, at least the numbers are consistently moving in the right direction."

The bank logged a first-quarter net loss of $140.5 million, or 27 cents per share, compared with a year-earlier loss of $116.9 million, or 44 cents per share.

Analysts, on average, had expected Marshall & Ilsley to post a loss of 40 cents per share, according to Thomson Reuters I/B/E/S.

The Milwaukee-based company, which has $56.6 billion in assets, expects "a relative stabilization of credit quality trends," adding that "hard work remains to improve credit quality." (Reporting by Jonathan Spicer and Maria Aspan; editing by Gerald E. McCormick and Andre Grenon)