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The firm's $91 million loss, on weak volumes during one of the most difficult trading quarters in recent memory, came a day after Goldman overcame those same conditions to beat Street estimates with a $1.9 billion profit.

Morgan Stanley shares fell 1.5 percent in premarket trading on Wednesday, while Goldman shares were higher.

"Morgan Stanley is a caterpillar in metamorphosis. It's either going to turn into a beautiful butterfly or get eaten by a robin," said Brad Hintz, an analyst with Sanford C. Bernstein.

"You could look ahead and say I'm going to like the future Morgan better than I'm going to like the future Goldman, but you're still going to have a period that's pretty rough on the stock."

Morgan Stanley has been playing catch-up with its arch-rival since the financial crisis. In 2009, Goldman cashed in on windfall trading opportunities to report a record annual profit, while Morgan Stanley, which had scaled back risk, reported a loss.

The leading investment banks have gone in different directions since the financial crisis, with Morgan Stanley rebalancing its businesses to include the largest retail brokerage and Goldman sticking to its banking and trading roots.

Analysts say Morgan Stanley still has more work ahead in that transition -- and it will never beat Goldman on traditional trading.

"Morgan Stanley has done an adequate job in these terrible markets of not performing very badly. But when you're competing against Goldman Sachs and there's a contrast, most times you're going to look bad, and this is one of those times," said Mike Holland, founder of Holland & Co in New York, which oversees more than $4 billion of assets.

Morgan Stanley said third-quarter income from continuing operations was 5 cents a share. Analysts' average forecast was 15 cents, according to Thomson Reuters I/B/E/S.

Fixed income sales and trading revenues were $846 million, down 57 percent from a year earlier.

The bank reported a net loss applicable to shareholders of $91 million, compared with a profit of $498 million a year earlier.

Morgan Stanley said its results reflected a writedown of $229 million related to Revel Entertainment Group, a troubled hotel and casino project in Atlantic City, New Jersey.

Its global wealth management business did not offer much relief, reporting net revenues of $3.1 billion, up just 1 percent from a year earlier. [ID:nN20246987] Morgan Stanley said lower levels of client activity weighed on its retail brokerage results.

The firm also announced it was restructuring its ownership of FrontPoint Partners LLC, its hedge fund unit. Morgan Stanley will retain a minority ownership in FrontPoint.

Morgan Stanley shares were down 37 cents, or 1.5 percent, to $25.02 in premarket trade.

(Reporting by Steve Eder; additional reporting by Maria Aspan; editing by John Wallace)

The company, which competes with Airbus (EAD.PA), said its third-quarter net profit was $837 million, or $1.12 per share, compared with a loss of $1.56 billion, or $2.23 a share a year ago.

The results beat Wall Street expectations for a profit of $1.06 per share, according to Thomson Reuters I/B/E/S. Shares of Boeing, a Dow component rose 2.4 percent to $70.72 in premarket trade.

The company increased its 2010 earnings per share forecast to between $3.80 and $4 per share, reflecting its stronger commercial airplanes business. Previously the company had predicted it would earn $3.50 to $3.80 per share in 2010.

Boeing narrowed its revenue forecast to between $64.5 billion and $65.5 billion.

The company's order backlog rose to $321 billion in the quarter.

Revenue from the commercial airplane division rose 11 percent to $8.7 billion on higher airplane deliveries and services volume, the company said.

Boeing Commercial Airplanes booked 257 orders during the quarter while 36 orders were withdrawn. The commercial order backlog amounted to 3,401 airplanes valued at $255 billion.

Revenue from the defense unit declined 6 percent to $8.2 billion on lower volume.

The company reaffirmed its plan to make first delivery of its long-delayed 787 Dreamliner in the first quarter of 2011.

Boeing said in September it would delay first delivery of the 747-8 Freighter, its biggest commercial jet, to mid-2011 from the fourth quarter of 2010.

(Reporting by Kyle Peterson, editing by Maureen Bavdek and Derek Caney)

* A string of U.S. Federal Reserve officials on Tuesday indicated the central bank will soon offer further monetary stimulus to the economy, with one saying $100 billion a month in bond buys may be appropriate.

* General Electric Co (GE.N), Honeywell International (HON.N) and United Technologies (UTX.N) are among the suitors for BAE Systems' (BAES.L) aerospace unit that could fetch up to $2 billion for Europe's top defense group, people familiar with the matter said on Tuesday.

* Yahoo Inc's (YHOO.O) quarterly sales forecast disappointed Wall Street and underscored how the one-time Internet leader is struggling to keep up with Google Inc (GOOG.O) and Facebook.

* Boston Scientific Corp (BSX.N) posted better-than-expected quarterly earnings as a slump in sales of its medical devices was less severe than feared, and its shares rose after-hours.

* Juniper Networks' (JNPR.N) quarterly revenue slightly missed Wall Street's expectations, disappointing investors who had hoped for stronger signs of a recovery in network spending.

* Western Digital Corp (WDC.N) sought to reassure investors about the slowing hard-drive business, as the advent of tablet computers eats into computer demand.

* Companies expected to report earnings on Wednesday include Boeing Co (BA.N), Genzyme Corp (GENZ.O), Altria Group Inc (MO.N), Morgan Stanley (MS.N), Stanley Black & Decker Inc (SWK.N), U.S. Bancorp (USB.N), United Technologies (UTX.N), Wells Fargo & Co (WFC.N) and Xilinx Inc (XLNX.O).

* Economic events include the U.S. Federal Reserve's Beige Book of economic data gathered from its 12 regional banks.

* Oil rose above $80 a barrel, supported by signs that U.S. fuel stockpiles are falling and as some investors took the view that an interest rate increase by China would do little to dampen its oil use.

* European stocks were flat in morning trade, with gains in pharma stocks offset by losses in the energy sector.

* U.S. stocks posted their biggest loss in two months on Tuesday on fears banks might be on the hook for billions of dollars in souring mortgage bonds.

* The Dow Jones industrial average .DJI dropped 165.07 points, or 1.48 percent, to 10,978.62. The Standard & Poor's 500 Index .SPX lost 18.81 points, or 1.59 percent, to 1,165.90. The Nasdaq Composite Index .IXIC fell 43.71 points, or 1.76 percent, to 2,436.95.

* The S&P 500 fell the most since mid-August when equities were in a steep selloff. The index closed below its 10-day moving average, which some traders see as a bearish sign.

(Reporting by Blaise Robinson; Editing by David Holmes)

A group of eight investors accused Bank of America of inappropriately bundling some mortgages into more than $47 billion of bonds. The bank said it would fight being held responsible for the investors' losses.

With pressure mounting for a tougher response by the Obama administration just two weeks before congressional elections, a top Justice Department official was due to meet with housing industry regulators on Wednesday.

Bank of America and GMAC Mortgage, two of the largest mortgage servicers, also faced criticism they were acting too fast in announcing the lifting of foreclosure freezes they imposed in response to accusations of shoddy paperwork.

The foreclosure fiasco has drawn attention to mortgage-related problems at banks, including a trend toward these so-called "putbacks" by holders of mortgage securities.

Bank stocks had recovered some ground Monday after heavy losses last week on fears the foreclosure problems could curb bank earnings.

The putback threat, where investors accuse lenders of misrepresenting the loans that underpin mortgage securities, appeared to unnerve investors once more.

"This repurchase issue is now elevated from the undercard to the main event," said Jefferson Harralson, Atlanta-based bank analyst with Keefe, Bruyette & Woods Inc. "It makes you think the losses on these repurchases will be higher because the litigants have significant resources and are some of the most powerful institutions in the country."

Shares of Bank of America, the largest U.S. mortgage servicer, closed down 4.4 percent. Wells Fargo shares lost 1.3 percent, JP Morgan Chase ended 1.4 percent lower and Citigroup lost 2.6 percent.

Bloomberg News reported that the New York Federal Reserve and bond fund Pimco were among the investors taking action against Bank of America.

Dan Frahm, spokesman for Bank of America Home Loans told Reuters, "We believe we've complied with our obligations."

J.P. Morgan analysts have estimated the mortgage putback risk to the industry at $55 billion to $120 billion over five years.

NOT OFF THE HOOK

The foreclosure documents fiasco, in which banks are accused of using "robo-signers" to sign hundreds of foreclosure documents a day, has reignited public anger with banks, blamed for helping cause the recent financial crisis and recession.

The Wall Street Journal reported that a four-month probe into five top U.S. mortgage servicers showed some were significantly worse than others in how they handle home loans.

In 2010, the New York-based company's stock has been a laggard, down as much as 40 percent on concerns about client outflows in the first half of the year.

Shares started to turn around in September when the company's chief executive, Laurence Fink, told a Barclays Capital financial services conference he was seeing much stronger inflows.

BlackRock shares are now down 24 percent for the year, compared with the 4 percent that the Dow Jones U.S. Asset Manager Index .DJUSAG has fallen in the same period.

"The quarter should be pretty good," said Jason Weyeneth, an analyst at Sterne, Agee & Leach, who follows the company.

After the company's blockbuster acquisition of Barclays Global Investors and its iShares exchange-traded-fund business nearly a year ago, investors pared back their growth expectations for the company, as they wondered whether a $3.2 trillion asset manager could realistically grow much larger.

"You saw the stock underperform as there was obviously some confusion, some disappointment, and some surprise around deal-related attrition," Weyeneth added. "But the net flows should be much better successively."

A September stock market rally probably also helped the company, although it may have also raised investors' expectations for BlackRock and other asset managers, which tend to have heavy exposure to equities.

Analysts polled by Thomson Reuters I/B/E/S, on average, expect BlackRock to earn $2.46 per share for the third quarter, compared with the adjusted $2.37 per share it reported in the second quarter.

Analysts have increased their earnings estimates by 5.1 percent for the company since October 4, according to Thomson Reuters Starmine.

William Katz, an analyst at Citigroup who follows asset managers, said in a note to clients earlier this month that he would expect assets under management at BlackRock to increase by 9 percent from the previous quarter, helped by the strong inflows Fink spoke about.

The company, however, has also previously warned that some big clients were planning to take money out of BlackRock in the third quarter, as they wanted to redistribute assets as a result of the Barclays deal.

For BlackRock, the third quarter could be the beginning of stronger momentum in inflows going forward, analysts said.

Institutional investors, particularly pension funds, have been expected to boost the amount of money allocated to managers this year, as low interest rates have made it difficult to meet their portfolios' return expectations.

"Pension funds actually funding new mandates, but it takes a little while before changes in managers actually start to show up in results," Weyeneth said.

BlackRock shares were trading off 1.4 percent at $174 per share on the New York Stock Exchange on Tuesday ahead of its earnings report.

(Reporting by Emily Chasan; Editing by Steve Orlofsky)