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By Jonathan Stempel

NEW YORK, July 21 (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research) on Monday reported a quarterly profit that fell less than expected, as improved investment banking results offset a surge in bad loans, causing shares of the largest U.S. retail bank and mortgage lender to soar.

Though the 41 percent drop in earnings was the bank's fourth straight quarterly decline, Bank of America became the fourth of the five largest U.S. banks to top forecasts, joining Citigroup Inc (C.N: Quote, Profile, Research) JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and Wells Fargo & Co (WFC.N: Quote, Profile, Research).

The bank also said its July 1 purchase of Countrywide Financial Corp, once the nation's largest mortgage lender, will add to profit faster and result in deeper cost cuts than previously estimated.

"It suggests the credit crisis isn't as bad as people thought" for lenders, said Steve Roukis, managing director at Matrix Asset Advisors Inc in New York, which invests $1.4 billion. "A week ago there was tremendous fear about systematic risk to the system. There's definitely a floor here."

Second-quarter net income for the Charlotte, North Carolina-based bank fell to $3.41 billion, or 72 cents per share, from $5.76 billion, or $1.28, a year earlier.

Results included $212 million of merger and restructuring costs. Net revenue increased 4 percent to $20.32 billion.

Analysts on average expected profit of 48 cents per share on revenue of $18.26 billion, Reuters Estimates said.