UPDATE 2-Marshall & Ilsley ups Q2 loss;bad loans moderating

* Q2 shr loss $0.83

* Sees loan losses stabilizing in Q3

* Shares rise 2 pct (Adds loan loss allowance, share price)

NEW YORK, Aug 10 (Reuters) - Marshall & Ilsley Corp (MI.N), Wisconsin's largest bank, on Monday increased the size of its previously reported second-quarter loss to reflect a recent sale of soured residential loans.

The net loss applicable to common shareholders is now $234 million, or 83 cents per share, up from the $139.3 million, or 50 cents, that the Milwaukee-based bank reported on July 17.

Marshall & Ilsley said it sold $297 million of mainly nonperforming residential mortgages on July 31 and that accounting rules require it to report the sale retroactively in its fiscal second quarter.

The sale increased second-quarter net charge-offs to $603.3 million from a previously reported $452.6 million, and boosted the bank's provision for loan and lease losses in the quarter to $619 million from $468.2 million.

By moving the reporting forward, Marshall & Ilsley now expects its third-quarter provision and net charge-offs to be "significantly less" than what it originally reported for the second quarter.

Based on early third-quarter results, the bank "expects a relative stabilization in the nonperforming loan and lease levels."

As of June 30, the bank is now reporting nonperforming loans and leases equal to 5.01 percent of total loans and leases, and a loss allowance of 2.84 percent of total loans and leases. The tangible common equity ratio was 7.2 percent.

Marshall & Ilsley has about $59.7 billion of assets, and operates more than 370 branches, including 193 in Wisconsin.

The bank's shares rose 14 cents to $7.25 in morning trading on the New York Stock Exchange. (Reporting by Jonathan Stempel; editing by John Wallace)