NEW YORK - Capital One Financial Corp said defaults on its U.S.-issued credit cards rose in January as unemployment soared, sending the company's shares down 17.5 percent.

Two analysts said Capital One might have to cut its dividend in 2009 -- only one year after a 14-fold increase -- as growing credit losses and the need to set aside money to cover those losses are expected to dent its profits.

In a regulatory filing on Tuesday, the company said the annual net charge-off rate -- a measure of credit default -- for U.S. credit cards rose to 7.82 percent in January from 7.71 percent in December, while the rate for loans at least 30 days delinquent increased to 5.02 percent from 4.78 percent.

The McLean, Virginia-based company said it expects loan losses from U.S. cards to increase to 8.1 percent in the first quarter.

In auto loans, Capital One's charge-off rate rose to 6.09 percent in January from 5.93 percent in December.

The credit quality metric that Capital One posted this morning were representative of the deteriorating economic backdrop, said David Long, an analyst at investment bank William Blair.

In January, the firm, one of the largest issuers of MasterCard and Visa credit cards, posted disappointing quarterly results and forecast more credit losses in 2009 as debt-burdened American consumers struggle with the highest unemployment rates in 16 years.

Capital One shares were down $2.12 to $9.99 in early afternoon trading. The stock has dropped 65 percent this year, compared with a 45 percent decline in the KBW Bank Index <.BKX>.

DIVIDEND AT RISK

The company is expected to pay $1.50 per share in dividends in 2009, but analysts estimate Capital One will only make a profit of 20 cents per share this year, according to Reuters data, forcing the company to slash its payout, analysts said.

They are not earning their dividend this year by most expectations, and I think Capital One will become a more conservative company after the losses they posted in the last quarter, and the struggles they are going to have in the near term, said Chris Brendler, an analyst at Stifel Nicolaus.

Possibly it can go all the way down to one penny and get in line with a lot of financial companies that are struggling with credit problems, he added.

There was no executive immediately available at Capital One to comment.

In recent months, troubled banks such as Citigroup Inc and Bank of America Corp have slashed their dividends to one penny per share after mounting losses and government-funded bailouts.

Capital One received $3.55 billion last year under the $700 billion taxpayer-funded Troubled Asset Relief Program.

The firm once specialized in credit cards but expanded into branch banking in recent years after acquiring Louisiana's Hibernia Corp and New York's North Fork Bancorp Inc.

Capital One agreed to buy Chevy Chase Bank for $520 million in December, expanding its retail deposit base in the affluent suburbs of Washington.

They are transforming to a more commercial-like business model, Long said. However, more than 50 percent of their business is the U.S. credit card business, so they are still a highly consumer-weighted company.

(Reporting by Juan Lagorio, editing by John Wallace and Tim Dobbyn)

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