UPDATE 2-BofA shares drop, debt insurance costs jump

* Shares fall as much as 6.4 pct, then rebound slightly

* Investors spooked by capital worries

* BofA debt insurance costs rise to record levels (Adds details on debt insurance costs, analyst comment, byline)

Bank of America Corp's (BAC.N) shares fell as much as 6.4 percent to their lowest level since March 2009 as investors worried about possible write-offs and capital raises.

The cost of insuring the bank's debt against default spiked to record levels.

Investors said there was little new information on Bank of America on Tuesday, but the downward momentum in the bank's shares has taken on a life of its own.

"It's on a self-fulfilling downward spiral. I don't know what's going to make BofA go up," said Mark Coffelt, head portfolio manager at Austin-based money manager Empiric Advisors.

Bank of America shares fell as low as $6.01 before rebounding. They were still down 2.1 percent to $6.28 in morning trading, compared with gains in the KBW Bank Index .BKX and the S&P 500 Index .SPX.

Credit default swap insurance on the bank's unsecured debt jumped 64 basis points to 435 basis points, meaning it would cost $435,000 per year for five years to insure $10 million in bonds, according to Markit.

The bank's CDS previously traded as high as 386 basis points in March 2009, Markit data show.

"It's definitely been your weakest bank stock and it continues to lead the charge down," said Dennis Dick, Detroit-based market structure consultant and proprietary trader at Bright Trading LLC.

"Every day it's the same story. It keeps leading the charge down on financials, and every trader is probably using that as an indicator to trade the rest of the financials too."

(For an INSTANT VIEW on Bank of America, see [ID:nN1E77M0J9].) (Reporting by Joe Rauch; additional reporting by Lauren LaCapra, Jonathan Spicer and Karen Brettell in New York; editing by John Wallace)