Shares of E*Trade Financial Corp rebounded on Tuesday as investor fears eased a day after an analyst said mounting credit losses of the online banking and brokerage company could put it at risk of bankruptcy.

Mike Vinciquerra, an analyst at BMO Capital Markets, said on Tuesday that a bankruptcy is highly unlikely. On Monday, a Citigroup analyst had warned that E*Trade faces a 15 percent chance of bankruptcy.

E*Trade shares closed up 41 percent at $5.00 on the Nasdaq, recovering some of Monday's losses, when they sank 59 percent.

After the market close on Tuesday, E*Trade Chief Executive Mitch Caplan canceled a scheduled presentation on Wednesday at a Merrill Lynch & Co banking conference in New York.

E*Trade spokeswoman Pam Erickson did not provide a reason for the cancellation, but said Caplan was focusing on priorities.

Following that news, E*Trade company's shares rose 4 percent to $5.20 in electronic trade.

Usually when CEOs cancel these appearances it means that something corporate-related is up, said Patrick O'Shaughnessy, an analyst with Morningstar. And certainly there are a lot of rumors out there that E*Trade could get bought out.

O'Shaughnessy said if E*Trade is indeed bleeding client assets, it may want to focus on doing a deal sooner rather than later.

E*Trade bonds, meanwhile tumbled on Tuesday, reacting to Monday's analyst report, when the bond markets were closed, and to a two-notch rating downgrade of E*Trade's debt.

E*Trade's 8 percent notes due in 2011 fell to 81 cents on the dollar, down 11.75 cents from Thursday, their previous significant trade, according to MarketAxess. Yields on the bonds rose to 1,166 basis points over Treasuries from 665 basis points on Thursday. Bonds that yield 1,000 basis points or more over Treasury bonds are considered distressed.

A hundred basis points equals one percentage point.

Citigroup analyst Prashant Bhatia on Monday downgraded E*Trade's shares to sell from hold, a forecast that incorporated a 15 percent chance of bankruptcy.

Bhatia also said customers could withdraw assets first, and ask questions later.

Other equity analysts downgraded their ratings or reduced their price targets but did not raise the specter of bankruptcy.

Withdrawals would have to be massive for the company to have major issues, Vinciquerra said.

A key fact that some people seem to be ignoring is that E*Trade's deposits have actually grown for the last 13 months consecutively.

Deutsche Bank analyst Matthew Fischer also said on Monday the brokerage's retail business remains strong.

E*Trade told customers on Monday it could absorb a $1 billion write-down and remain well capitalized.

It also said that in October, client assets were up 4 percent to about $227 billion from the previous month.

Vinciquerra also said E*Trade's entire banking and brokerage business would be bought at a meaningful premium to current levels before it went bankrupt.

But rating agencies expressed concern about E*Trade's loan and mortgage-related portfolios.

Standard & Poor's on Tuesday cut E*Trade's rating deeper into junk status and warned it may cut it again, citing expected fourth-quarter write-downs and concerns about the company's loan portfolios. S&P cut the rating by two notches to B, five steps below investment grade, from BB-minus.

Another rating agency, Moody's Investors Service, was less harsh, changing its outlook to stable from positive, which indicates less chance of an upgrade over the next 12 to 18 months. Moody's rates E*Trade's senior debt Ba2, two steps below investment grade.

E*Trade's remaining exposure from its mortgage-related portfolio is likely to weigh on earnings and profits for several quarters, Moody's said.

(Editing by Leslie Adler)

Investment Citigroup Merrill Lynch