By Jonathan Stempel

Other financial companies posted mixed quarterly results on Wednesday.

BlackRock Inc , a money manager in which PNC has a roughly one-third stake, said profit fell 84 percent, while Hudson City Bancorp Inc , a big New Jersey mortgage specialist and one of the nation's largest thrifts, said profit rose 60 percent to a record. Northern Trust Corp , a large custodial bank, said its profit nearly tripled.

Investors worry that a deep recession will cause credit losses to soar, eating into capital even at banks such as PNC and U.S. Bancorp that have sidestepped the worst of the credit crisis. The two banks said they have enough capital, after raising a respective $7.7 billion and $6.6 billion from the government's Troubled Asset Relief Program.

"Investors will have to pick their spots," said Bill Fitzpatrick, a banking analyst at Optique Capital Management Inc in Milwaukee. "You want lenders with minimal credit risk."

In afternoon trading, PNC was up $4.33, or 19.7 percent, at $26.33, after earlier rising to $27.40, while U.S. Bancorp was down $2.32, or 15.1 percent, to $13.02, after falling to $11.80. The banks are among the nation's 10 largest. The Standard & Poor's Financials Index <.GSPF> was up 5.6 percent, a day after sinking 16.7 percent to a nearly 14-year low.

NATIONAL CITY LOSSES CONTAINED

Pittsburgh-based PNC said it expects on February 3 to report a fourth-quarter loss because of costs tied to National City, but said credit losses from the purchase will be "substantially below" its previous $1.8 billion forecast.

Excluding merger costs, PNC expects a substantial quarterly profit, though the Pittsburgh-based lender expects to set aside $450 million to $500 million to cover credit losses and "market-related impairments."

National City, based in Cleveland, had been a large bank and mortgage lender before PNC used part of its TARP money to buy it for about $3.9 billion on December 31.

Shares of PNC had fallen more than 41 percent on Tuesday amid concern about investment writedowns, after State Street Corp reported surprisingly large unrealized losses.

"PNC tried to remove some of the anxiety and uncertainty regarding the company's fundamentals," said Michael Sheldon, chief market strategist of RDM Financial Group in Westport, Connecticut. "The report wasn't a disaster."

CONSUMERS, BUSINESSES CUT BACK

Minneapolis-based U.S. Bancorp, meanwhile, said quarterly profit fell 65 percent to its lowest level since 2001, hurt by rising credit losses and investment writedowns.

Fourth-quarter net income fell to $330 million, or 15 cents per share, from $942 million, or 53 cents, a year earlier. Analysts expected profit of 18 cents per share.

The bank more than quintupled the amount set aside for credit losses, to $1.27 billion, reflecting falling home values and increased stress in commercial and construction loans.

Net charge-offs nearly tripled to $632 million, and Chief Executive Richard Davis said these might keep rising 20 percent to 30 percent per quarter.

The bank in November took over failed California lenders Downey Financial Corp and PFF Bancorp Inc , with support from the federal government.

"Getting the housing situation fixed will be the first remedy" to restoring the health of banking, Davis said. "Make no mistake, consumers and businesses are spending less, they're traveling less, and they're watching their nickels and dimes."

Some analysts questioned U.S. Bancorp's ability to keep paying its 42.5 cents per share quarterly dividend. Standard & Poor's equity analyst Stuart Plesser downgraded the bank to "sell" from "hold," saying a dividend cut will be needed.

(Reporting by Jonathan Stempel; Additional reporting by Elinor Comlay and Juan Lagorio; Editing by Tim Dobbyn)