UPDATE 1-RESEARCH ALERT-Fox-Pitt raises Capital One to in line

(Adds details, share movement)

Oct 13 (Reuters) - Fox-Pitt Kelton upgraded Capital One Financial Corp (COF.N) to "in line" from "underperform," and said the credit card and banking company's current valuation does not reflect its capital and deposit strength.

The company's shares, which have shed 24 percent so far this year, were up 5 percent at $37.34 in midday trade on the New York Stock Exchange.

The banking industry is undergoing a rapid rationalization that should benefit strongly capitalized and solidly funded institutions over time, the brokerage said.

From a credit perspective, Capital One remains better positioned than peers who have significant mortgage exposure, but the brokerage expects card losses and overall losses to increase along with the rise in unemployment, it added.

The brokerage said it recently lowered its 2009 earnings estimates on the company to $3.99 from $4.65 a share, assuming a higher base-case unemployment rate and consequent higher losses.

"It is important to note that we are still forecasting profits and not a loss in 2009," analyst Howard Shapiro wrote in a note to clients. (Reporting by Santosh Nadgir in Bangalore; Editing by Deepak Kannan)