Nov. 18 (Bloomberg) -- Bank of America Corp. will pay $7 billion to almost double its stake in China Construction Bank Corp., adding to the purchase of Merrill Lynch & Co. even as it cuts jobs and gets government bailout funds.

The biggest U.S. bank by market value will boost the three- year-old holding in China's No. 2 lender to 19.13 percent from 10.8 percent by buying shares from the government. China Construction fell 5.4 percent in Hong Kong at 12:15 p.m. on concern Bank of America may sell stock it bought in 2005 after a lockup period on that stake ended last month.

Chief Executive Officer Kenneth Lewis, three weeks after getting $15 billion from the U.S. government, raised his bet on China Construction after the stock lost 45 percent in the past six months. He is paying 32 percent less than yesterday's closing price. The move came as Citigroup Inc. announced plans to eliminate 52,000 jobs following four quarters of losses.

``People should be delighted that Bank of America is thinking long term about its options and isn't just barricaded in their shack out in the woods,'' said Daniel Rosen, principal of Rhodium Group, a New York firm that advises companies on overseas investments.

Bank of America isn't funding the purchase with proceeds from the government's Troubled Asset Relief Program, or TARP, said spokesman Scott Silvestri. Merrill received $10 billion through the Treasury's $250 billion bank-rescue package.

1.2 Times Book

``This is falling closely on the heels of their receiving TARP money, which was intended to spur lending in the U.S. or have bigger, stronger banks buy the failing banks,'' said Jaime Peters, an analyst at Morningstar Inc. in Chicago. ``But neither of these things is happening.''

Bank of America, based in Charlotte, North Carolina, first invested in China Construction in June 2005, buying a $3 billion stake before the lender went public. It invested another $1.9 billion in June. The value of its holding almost tripled, to $14.5 billion, as of Sept. 30, a regulatory filing showed.

The company will buy China Construction shares denominated in Hong Kong dollars at 1.2 times audited book value as of Sept. 30, the Chinese bank said without elaborating. China Construction's unaudited book value per share was 2.05 yuan, according to its third-quarter report. The bank will publish audited results on Nov. 21.

The terms suggest Bank of America will pay as much as 2.46 yuan per share, equivalent to HK$2.79. The stock closed at HK$4.11 yesterday. A China Construction investor relations officer confirmed the price for the stake.

Cutting Dividend, Jobs

Bank of America plans to be ``a long-term and significant strategic investor in CCB,'' the U.S. lender said in a statement. The new shares can't be sold until Aug. 29, 2011, without the Chinese bank's consent. The stock Bank of America bought in 2005 became eligible for sale last month, prompting analysts to suggest the U.S. lender would sell part of its stake to boost capital.

Lewis slashed his dividend by half after reporting a 68 percent drop in third-quarter profit because of rising losses on consumer and business loans. The bank has raised $22 billion by selling common and preferred shares this year, including $10 billion in October to help pay for its Merrill Lynch acquisition.

Thousands of Merrill Lynch and Bank of America employees will lose their jobs because of the merger, Merrill CEO John Thain said on Oct. 20. The purchase is expected to be completed on or about Dec. 31.

``Banks have entered the political world and everything they do is going to be under the political microscope,'' said Christopher Whalen of Institutional Risk Analytics, a Torrance, California-based research firm. ``Ken Lewis can say it's a good investment and he can probably get away with it if he doesn't have to take any more government money.''

Chinese Lenders

China Construction said last month that third-quarter profit rose 12 percent on higher interest income. Still, China's six largest listed banks will probably report declining profits next year as lower interest rates shrink margins and loan defaults increase, HSBC Holdings Plc said in a Nov. 12 research note.

``China Construction Bank is tightly tied to the government and they are a preferred bank,'' said Richard Wottrich, managing director of Dresner Partners, a Chicago-based investment banking firm. ``China will probably return the favor someday by doing something for Bank of America if they need help.''

China Construction shares have increased 87 percent since its initial public offering in October 2005. Bank of America has declined 61 percent in that period and fetched $15.03, the lowest since August 1995, at 4:30 p.m. in New York Stock Exchange composite trading.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Cathy Chan in Hong Kong at kchan14@bloomberg.net

Last Updated: November 17, 2008 23:28 EST