UPDATE 2-E*Trade loss narrows; mum on key TARP application

* Loan loss provision $513 million in quarter

* $3.5 bln net new assets in quarter; $900 in December

* December DARTS down 18 pct from November at 179,162

* Shares drop 4.5 percent after hours (Adds analyst comment, December new assets, updates shares)

By Jonathan Spicer

NEW YORK, Jan 27 (Reuters) - E*Trade Financial Corp (ETFC.O) reported a narrower quarterly loss on Tuesday, but only a small decline in loan loss provisions as mortgage troubles continued to weigh down results.

The online broker, hurt more than its peers by the mortgage meltdown, said its application for $800 million from the U.S. government's Troubled Asset Relief Program (TARP) "remains under active consideration" after nearly three months.

E*Trade's shares slipped 4.5 percent in after-hours trading.

Many analysts believe the TARP funds are necessary for E*Trade's survival in its current form and the government's delay as a bad omen. But the company's chief executive disagreed.

"TARP is nice for maintaining confidence in the company and it would be a good thing in a tough environment, but we don't need it to maintain strength on our balance sheet," CEO Donald Layton told Reuters, adding the application process "should start ramping up again in a few weeks."

The company's fourth-quarter loss declined to $275.6 million, or 50 cents per share, from $1.71 billion, or $3.98, in the same period a year earlier. Revenue was $486.4 million.

On average, analysts polled by Reuters Estimates expected a loss of 24 cents per share on revenue of $185.2 million.

A year ago, the New York-based company said it expected to turn a quarterly profit in 2008. It has now reported six straight quarterly losses.

New customer assets quadrupled to $3.5 billion in the fourth quarter from the third, indicating the core brokerage operation remains strong, despite ongoing trouble in its mortgage business.

But December's net new assets were about $900 million, down 10 percent from November.

The loan loss provision, accounting for E*Trade's bad bets on mortgages, was $513 million in the latest quarter, down from $518 million in the third quarter, but up from $319 million in the second quarter.