UPDATE 7-Morgan Stanley posts big loss; market hopes worst over

* Loss of $2.2 billion is far worse than expected

* Results gutted by writedowns, impairments and losses

* Booked $4.1 bln gains from declining value of debt

* Shares close up 2.3 percent on hopes that worst is over (Adds details on results)

By Joseph A. Giannone

NEW YORK, Dec 17 (Reuters) - Morgan Stanley (MS.N) reported a much wider-than-expected $2.2 billion quarterly loss on Wednesday on plummeting markets and poor trading moves, while banking and brokerage fees sank.

It was the bank's second loss in the last five quarters, and six times deeper than expected, driven by a laundry list of setbacks: $1.7 billion in writedowns of leveraged buyout loans, $800 million in writedowns of assets held in bank units and $1.8 billion in principal investment losses.

Even some of the positives were not great news for investors. Morgan Stanley recorded a $2.1 billion gain from buying back its own debt at distressed levels, and a $2 billion gain from the falling value of its own bonds.

Still, shares rose as much as 11.2 percent on hopes that the worst of the losses may be over. Before the rally, Morgan Stanley traded for about one-half of its book value, or $30.24 a share at the end of November.