Wachovia's top funds may take $2.5 billiln hit

BOSTON (Reuters) - U.S. money managers Dodge & Cox and Fidelity Investments probably suffered a combined $2.5 billion drop in the value of their portfolio holdings of Wachovia Corp as the banking firm's shares tumbled 82 percent on Monday.

Wachovia shares sank as much as 87.5 percent in the afternoon after Citigroup Inc earlier in the day agreed to buy its banking operations in a rescue sale brokered by U.S. banking regulators.

The purchase, including retail and investment banking operations, values Wachovia at roughly $1 per share.

Wachovia shares closed at $1.84 on Monday, down from Friday's close at $10.

Dodge & Cox was Wachovia's biggest institutional shareholder as of June 30, owning 188.93 million shares, or 8.75 percent of the banking firm, according to Reuters data. The firm bought 64 million Wachovia shares in the second quarter, the data shows.

Dodge & Cox's chief investment officer Charles Pohl told Reuters in June that investors were misunderstanding Wachovia's business, and its stock, then trading around $17, was priced "awfully low."

A Dodge & Cox spokesman was not immediately available for comment.

Fidelity, the world's biggest mutual fund company and Wachovia's second-biggest institutional shareholder, owned 114.8 million shares, or 5.32 percent, as of June 30, according to Reuters data.

The Boston-based money manager also bought nearly 70 million Wachovia shares in the second quarter, the data shows.

Fidelity's flagship Magellan fund owned $404 million worth of Wachovia shares and $38.5 million of its convertible securities as of the end of August, according to data on Fidelity's website.

A Fidelity spokesman did not have any immediate comment on the impact of the Wachovia stock decline.

(Reporting by Muralikumar Anantharaman; Editing by Tim Dobbyn)