UPDATE 3-Bank of America credit losses soar, profit falls

* CEO says tough environment to affect results into 2010

* Profit attributable to shareholders down 25 pct

* Credit losses surge anew

* Shares fall in premarket trade (New throughout, adds byline)

By Jonathan Stempel

NEW YORK, July 17 (Reuters) - Bank of America Corp (BAC.N), the largest U.S. bank, posted a quarterly profit that topped Wall Street forecasts but warned of a fresh surge in soured loans to credit card, mortgage and business customers.

Chief Executive Kenneth Lewis said tough economic conditions will hurt results into 2010. Soaring credit losses may add to pressure on Lewis as the U.S. Congress and regulators increase their scrutiny of the bank, including its ability to manage risk and its controversial Jan. 1 acquisition of Merrill Lynch & Co.

"Growth in charge-offs and non-performing assets still scares the daylights out of me," said Paul Miller, an analyst at FBR Capital Markets.

Bank of America set aside $13.38 billion for bad loans for a second straight quarter, and net charge-offs totaled $8.7 billion, up 25 percent from the prior three-month period.

ONE-TIME GAIN HELPS RESULTS

Second-quarter net income applicable to common shareholders fell 25 percent to $2.42 billion, or 33 cents per share, from $3.22 billion, or 72 cents, a year earlier.

Before preferred stock dividends in both periods, profit fell 5 percent to $3.22 billion. Net revenue on a taxable equivalent basis rose 60 percent to $33.09 billion.

Results included a $5.3 billion pre-tax gain from the sale of one-third of the bank's stake in China Construction Bank Corp (601939.SS). They also included $713 million of dividend payments tied to a federal bailout of the bank, and a charge to bolster a federal deposit insurance fund.

Analysts on average expected profit of 29 cents per share on revenue of $33.26 billion, according to Reuters Estimates.

Nonperforming assets surged 21 percent to $30.98 billion. The Charlotte, North Carolina-based bank added $4.63 billion to reserves for bad loans, ending with $35.78 billion, and the rate of credit card losses soared to nearly 12 percent.

"Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010," Lewis said.

Bank of America shares fell 36 cents to $12.81 in premarket trade. Through Thursday, the shares had fallen 6 percent this year, compared with a 14 percent drop in the KBW Bank Index .BKX.

CEO UNDER PRESSURE

Lewis faces pressure from investors and regulators to improve performance after the bank's acquisition of Merrill, which caused its shares to tumble.

Regulators have so far not permitted Bank of America to repay its $45 billion federal bailout.

Congress is investigating whether Lewis was pushed to go through with the Merrill merger and withheld information about Merrill's problems from investors. New York Attorney General Andrew Cuomo is probing the bank's role in $3.62 billion of bonuses that Merrill awarded.

According to The Wall Street Journal, regulators have placed Bank of America under special secret oversight to address problems with risk and liquidity management.

Shareholders in April stripped Lewis of his chairman role, and Bank of America has since installed several directors with banking or regulatory experience.

CREDIT CARDS HURT AMID UGLY ENVIRONMENT

Credit card operations lost $1.62 billion in the quarter, the second straight quarterly loss, as the rate of managed card net losses soared to 11.73 percent from 8.62 percent at the end of March.

The mortgage and insurance business lost $725 million, despite an increase in mortgage and home equity loan production to $114.3 billion from the first quarter's $89.26 billion.

"We have a really ugly economic backdrop," said Michael Holland, president of money manager Holland & Co in New York. "Those numbers aren't going to go away soon."

Investment banking generated net income of $1.38 billion. Results benefited from $2.01 billion of trading profits, but that was a smaller amount than JPMorgan Chase & Co (JPM.N) and Goldman Sachs Group Inc (GS.N) enjoyed.

Goldman, which has repaid a $10 billion government bailout, reported a 33 percent rise in quarterly earnings on Tuesday.

JPMorgan, which has repaid a $25 billion bailout, posted a 36 percent increase in quarterly profit on Thursday.

Citigroup Inc (C.N), which has yet to repay a $45 billion bailout, on Friday reported a smaller-than-expected quarterly loss, excluding a big one-time gain from a brokerage joint venture with Morgan Stanley (MS.N). (Reporting by Jonathan Stempel; Additional reporting by Sweta Singh; editing by John Wallace)