BofA shares rise as capital debate continues

CHARLOTTE, North Carolina (Reuters) - Bank of America Corp (BAC.N) shares rebounded on Wednesday with their second-largest price increase this month after analysts said the bank's capital needs were not as dire as some had feared.

Bank of America closed up 11 percent, or 69 cents, at $6.99 after finishing at $6.30 on Tuesday, the stock's lowest closing price in 2-1/2 years.

The bank's shares posted their largest one-day gain since August 9, the day after Bank of America shares plummeted 20 percent.

The largest U.S. bank's stock accounted for 7.2 percent of the total market volume and outpaced a 3.34 percent gain in the KBW Bank Index .BKX and 1.31 percent rise in the S&P 500 Index .SPX.

Investors and analysts said the rebound was a reaction to the stock dropping 32 percent since the beginning of August and losing half its value so far this year.

"The stock is not out of the woods but the selling has been grossly overdone," said Marshall Front, chairman of Chicago-based Front Barnett Associates LLC.

Front's firm owns Bank of America shares and manages $600 million in assets.

Bank analyst Meredith Whitney and Raymond James bank analyst Anthony Polini said Bank of America's capital needs were not as pressing as some have estimated.

Their assessments came a day after former analyst Henry Blodget estimated the bank needed as much as $200 billion in additional capital. Bank of America said Blodget was wrong.

The differing views on the bank's capital position highlight the uncertainty that surrounds its large home mortgage portfolio.

Some observers believe the bank could be on the hook to repurchase billions of toxic home loans from now-soured mortgage-backed securities.

In June, the bank and a group of investors agreed to an $8.5 billion settlement over repurchase claims on loans made by Countrywide Financial Corp.

The repurchase claims and related litigation could stretch out for years, according to some analysts. Others see the bank as capable of earning its way through its problems, and say investor fears are overblown.

"We're in a war of words right now," said Marty Mosby, bank analyst with Guggenheim Securities.

On Tuesday, Bank of America sent a memo to employees to address rumors swirling about the bank.

According to the memo, obtained by Reuters, the bank called rumors that it may be sold to rival JPMorgan Chase & Co (JPM.N) "baseless" and said they "don't even make practical sense," adding that it has enough capital to operate its businesses.

The bank also said in the memo it can meet new industry capital rules without issuing new stock, reiterating a point made publicly in recent weeks by Chief Executive Brian Moynihan.

(Reporting by Joe Rauch; editing by John Wallace, Gary Hill)