Wachovia also announced it would cut 5,350 jobs by the end of 2009 as it restructures in the face of a difficult environment, and a sharp cut in its dividend.
Shares in Wachovia opened with heavy losses but rebounded sharply amid expectations that the banking giant would be taking moves to restore profitability.
Wachovia shares soared 27 percent to end at 16.79 dollars, leading the beleaguered banking sector higher.
"Perhaps the market is enthused about Wachovia's cost-cutting plans ... or, maybe investors are cheered by the Zen-like approach of CEO Robert Steel," said Elizabeth Harrow at Schaeffer's Investment Research.
Credit firm Standard & Poor's downgraded its rating on Wachovia but said the outlook is now stable. It said the bank was hurt by its acquisition of mortgage firm Golden West but is now taking steps to bolster its finances.
"The one-and-a-