Bank of America spokesman Scott Silvestri declined to comment

NEW YORK (Reuters) - Countrywide Financial Corp shares plummeted as much as 22 percent on Tuesday on speculation the largest U.S. mortgage lender might run short of cash, but recovered most of that loss after the company said it has ample liquidity and will not go bankrupt.

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In a statement late on Tuesday, Countrywide said it believes it has "ample liquidity and capital" to ride out the U.S. housing downturn, and will benefit from mortgage market consolidation. Earlier on Tuesday, the Wall Street Journal reported that a Countrywide spokeswoman called rumors the company could seek bankruptcy protection "absolutely false."

Countrywide shares closed down 29 cents, or 2.7 percent, at $10.28, after earlier falling to $8.21, their lowest since October 2000.

The earlier decline followed a downgrade of Countrywide by Fox-Pitt Kelton to "in line" from "outperform" and a worse- than-expected earnings report and outlook from Freddie Mac, the big mortgage finance company.

It also came as investors worry about the depth and duration of a U.S. housing downturn expected to result in up to 2 million foreclosures by the end of 2008. The slump has contributed so far to some $50 billion of write-downs by financial companies of mortgage-related debt.

"Nobody's got any faith in anyone telling the truth, or knowing what the truth is," said Anton Schutz, a portfolio manager at Mendon Capital Advisors in Rochester, New York.

Countrywide said it had $35.4 billion of "highly reliable liquidity" on October 31 and that its bank unit has "sufficient contingent liquidity" to cope with changing markets. It also said its Countrywide Home Loans unit will not need to sell debt to replace maturing debt until "beyond 2008."

Last month, Calabasas, California-based Countrywide posted a $1.2 billion third-quarter loss, but projected a return to profitability in the fourth quarter and in 2008.

BANK OF AMERICA

Countrywide shares traded for about three hours below $9 on Tuesday, half the $18 conversion price for the $2 billion of preferred stock Bank of America Corp, the second- largest U.S. bank, bought in August.

The infusion was designed to stabilize Countrywide and could also give Charlotte, North Carolina-based Bank of America a one-sixth stake in the company.

Bank of America spokesman Scott Silvestri declined to comment.

"Selling gathered some momentum on talk that Countrywide Financial is having liquidity problems," said Frederic Ruffy, an analyst at Optionetics, a stock options education firm.

Countrywide has said it is cutting 10,000 to 12,000 jobs as it focuses on safer loans that are less likely to default. October mortgage loan volume fell 48 percent from a year earlier.

The company has also shifted much of its lending to its banking unit, which it said is less reliant on capital markets for funding to conduct ordinary operations.

Late Monday, Moody's Investors Service affirmed Countrywide's "Baa3" debt rating, its lowest investment grade, with a "negative" outlook.

Countrywide had on November 9 said a downgrade to "junk" status could limit access to credit markets and hurt its business.

Credit default swaps on Countrywide Home Loans Inc rose 150 basis points to 900 basis points, or $900,000 per year for five years to insure $10 million of debt, according to data from Phoenix Partners Group.

(Reporting by Jonathan Stempel; additional reporting by Karen Brettell, Mark McSherry and Dan Wilchins in New York, and Doris Frankel in Chicago; editing by Toni Reinhold and Andre