UPDATE 5-Bank of America gets capital; Merrill loses $15.3 bln

* Bank of America posts loss; Merrill loses $15.31 billion

* Bank of America wins government rescue

* Shares lower (Ads CEO and other comments)

By Jonathan Stempel

NEW YORK, Jan 16 (Reuters) - Bank of America Corp (BAC.N), posted its first quarterly loss in 17 years on Friday and slashed its dividend, hours after winning a multibillion-dollar lifeline from the U.S. government to help absorb Merrill Lynch, which lost a record $15.31 billion in the quarter.

The dismal results came as the largest U.S. bank faced mounting pressure from investors who questioned how well it will absorb a tidal wave of soured loans in an economy showing no signs of escaping a deep recession. Bank of America cut its quarterly dividend to a penny from 32 cents.

"It is difficult to focus on what is going right at this time," a clearly downbeat Chief Executive Kenneth Lewis said on a conference call. "The economy and subsequently the credit markets literally hit a wall starting in September and culminating late in December, with the greatest impact of my almost 40 years in banking."

Shares of Bank of America fell 7 cents to $8.25 in morning trading.

Hours after it obtained $20 billion in new capital from the government's $700 billion Troubled Asset Relief Program (TARP), the bank reported a quarterly loss of $1.79 billion, or 48 cents per share, compared with a year-earlier profit of $268 million, or 5 cents.

Lewis sought government help after it became clear that Merrill's credit losses were far higher than expected, and had threatened last month to scrap the $19.4 billion takeover without government help.

He said the government worried that scuttling the merger could create "serious systemic harm," but that the Federal Reserve and Treasury Department gave assurances that they would provide necessary help if the merger closed.

Lewis added that the "severe" recession and credit crisis "will end some day, and people will remember that our company was there for them in hard times."

Bank of America's purchase of Merrill Lynch and its July acquisition of Countrywide Financial Corp gave the bank significant exposure to several major areas of the financial system, just as the economy's decline was accelerating.

"They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal," said Cassandra Toroian, chief investment officer at Bell Rock Capital in Paoli, Pennsylvania, which owns the bank's shares.

Through Thursday, the stock has fallen more than 81 percent from its 52-week high last February.

CREDIT LOSSES SKYROCKET