Hours after taking $20 billion in new state cash, Bank of America and recent addition Merrill Lynch revealed they had lost almost as much last quarter, while Citigroup also made thumping losses.

Bank of America lost $1.79 billion in the fourth quarter, while Merrill lost $15.3 billion, and Citi revealed a quarterly loss of $8.29 billion, its fifth in a row, and said it would split in two and shed problem assets.

Late on Thursday the US government had said it would give Bank of America the extra cash to help it absorb Merrill, and the US Senate cleared the release of the remaining $350 billion of emergency funds to tackle the economic crisis.

But as further evidence that economies and credit markets are not responding to massive bailouts and deep interest rate cuts, Bank of Japan Governor Masaaki Shirakawa said financial conditions in the world's second-biggest economy were tightening rapidly.

Conditions in France were also on the slide, as its central bank said it expected the economy to have contracted sharply in the final quarter of 2008, after its business survey showed sentiment soured and economic activity declined.

British ministers are aiming to announce yet another bank lending package, a Treasury source told Reuters, while Ireland nationalized Anglo Irish Bank, its third-largest lender, to save it from collapse.

'There's been another wave of the banking crisis,' said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.

'There was bad lending. The problem was compounded by the sheer weakness of the economy. So now decent lending has turned bad. It's gone full circle.'

As Ireland's Finance Minister Brian Lenihan acknowledged that Ireland's reputation had been damaged by the Anglo Irish Bank rescue, the cost of insuring the country's debt rose sharply on Friday.

Stocks rise

But stock markets in Asia and Europe took heart from the Senate vote and Bank of America package.

The Nikkei closed up 2.6 percent, Europe's biggest shares were up 3 percent, and futures for the major US indexes all pointed to opening gains.

Bank of America shares were up over 10 percent in premarket trade, while Citi's were up nearly 15 percent on hopes for the restructuring.

Shares in the two banks had tumbled on Thursday, while the US two-year interest rate swap spread - a gauge of risk aversion - swelled to retest its widest levels in a week.

Moody's Investors Service cut the debt rating of JPMorgan Chase & Co by one notch, citing potential losses over the next 15 months.

Bank of America will receive $20 billion of capital, in exchange for preferred stock, and a federal backstop against $118 billion of bad assets under an emergency plan announced by the Treasury Department, the US Federal Reserve and Federal Deposit Insurance Corp.

The capital injection, which comes on top of the $25 billion the bank has already received under the Troubled Asset Relief Program (TARP), is aimed at helping it absorb credit losses at Merrill Lynch & Co, which it bought on January 1.

Citigroup, which has already received $45 billion from TARP, said it would restructure into two units - one to focus on universal banking, the other on brokerage and retail asset management - while shedding weaker businesses and troubled assets.-Reuters