CORRECTED-UPDATE 6-Bank of America Sees $3 Billion Debt Write-Do

By Jonathan Stempel

NEW YORK (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. bank, said on Tuesday it expects to write down $3 billion of debt in the fourth quarter as fallout from the nation's housing slump deepens.

Nevertheless, shares rose as investors gained confidence that the bank and its rivals could withstand further turmoil, even if credit market liquidity fails to improve and more homeowners are expected to slide into foreclosure.

The pretax loss stems from collateralized debt obligations (CDOs), including those tied to subprime mortgages, and may increase if market conditions worsen, Chief Financial Officer Joe Price said at a Merrill Lynch & Co banking conference.

Bank of America also expects to set aside $600 million to help money market mutual funds exposed to risky debt maintain the $1 per share net asset value that all such funds try to keep. It is also writing down $300 million for a troubled investment, and setting aside more money for other housing-related losses, including to homebuilders.

Price called the losses "manageable," while cautioning that capital markets should remain turbulent into 2008.

"The losses are not only manageable for the bank, but were long ago discounted by investors," said Marshall Front, who oversees $800 million at Front Barnet Associates LLC in Chicago, including Bank of America shares. "Unless something enormous and unforeseen happens, major, diversified well-capitalized banks can handle these losses."

Shares of Bank of America closed up $2.29, or 5.2 percent, at $46.27 on the New York Stock Exchange. They remain down 13.3 percent this year.

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