By Dane Hamilton

NEW YORK (Reuters) - Wachovia Corp, hard hit by a downturn in the mortgage market, on Wednesday reached for a respected industry veteran to reverse its fortunes as it faces billions of dollars in second quarter losses.

Charlotte, North Carolina-based Wachovia, the fourth-biggest U.S. bank, named Robert Steel as its chief executive, replacing Lanty Smith, who was interim CEO following last month's ouster of Ken Thompson. Smith will remain the bank's chairman.

The announcement comes as Wachovia disclosed that it faces unexpected second-quarter losses of between $2.6 billion and $2.8 billion, or $1.23 to $1.33 per share. Analysts on average expected the bank to report a profit of 19 cents a share, according to Reuters Estimates.

The bank is groaning under the weight of a $121 billion portfolio of adjustable rate mortgages after buying California mortgage specialist Golden West Financial Corp in 2006, a purchase spearheaded by Thompson.

Steel, 56, most recently served as Under Secretary for Domestic Finance at the U.S. Treasury Department, a post where he worked closely with Treasury Secretary Hank Paulson, who recruited him to work there in 2006.

Both men are alumni of Goldman Sachs, the investment bank that managed to mostly sidestep a year-long credit crisis that roiled the world economy and led to billions of dollars in losses and writedowns at more than a dozen major banks.

But it is Steel's recent experience at Treasury, rather than his years at Goldman, that are likely to give him a grounding for stablilizing Wachovia and containing its losses.

Steel was considered Paulson's point man for dealing with escalating mortgage default and housing crisis of the last year, in particular an architect of capital raisings for hard-hit government-backed mortgage guarantors Freddie Mac and Fannie Mae.