WASHINGTON (AP) -Bank of America’s $4.1 billion rescue of Countrywide Financial could help stem economic turmoil by giving global investors more confidence in the battered U.S. mortgage industry.

It also bolsters arguments that government intervention isn’t the only way to assist struggling companies and settle nervous credit markets.

But experts say it’s nowhere near a complete fix for the U.S. housing mess, as investors are still jittery about looming losses in mortgage-related investments. The threat to homeowners isn’t over yet, either, analysts say, as 1.8 million subprime mortgages made to borrowers with poor credit are scheduled to reset to higher rates this year and in 2009.

“Hopefully this is a signal that things are a little bit better,” in the housing and mortgage sector, said Torsten Slok, senior economist with Deutsche Bank in New York.

Still, investors weren’t too reassured on Friday. The Dow Jones industrials finished down nearly 250 points as investors feared that the financial sector’s troubles with bad credit won’t be over soon.

Shares of Countrywide dropped $1.42, or more than 18 percent, to $6.33 on Friday, while shares of Bank of America Corp. slipped 80 cents, or 2 percent, to $38.50.

Countrywide had been the source of much worry because of its enormous size. It was the largest U.S. mortgage lender for the first nine months of last year. It also collects and distributes payments on more than 9 million loans worth $1.5 trillion and owns a federally regulated thrift with $55 billion in deposits.

Analysts say a bankruptcy filing by Countrywide would have been a logistical nightmare, and removing that threat eliminates a large source of potential source of instability for financial markets.

“What this demonstrates is the ability of the U.S. financial system to deal with a sizable problem in a manner that represents a relatively clean resolution,” said Bert Ely, an Alexandria, Va. banking industry consultant.

The acquisition isn’t expected to do much – at least right away – for the thousands of Countrywide borrowers struggling to make their mortgage payments. But it’s a significant development and consumer advocates are hopeful that Bank of America will do a better job of setting up loan modifications for struggling borrowers.

A Berkeley, Calif. low-income advocacy group, the Greenlining Institute, is urging regulators and lawmakers to pressure Bank of America to be more aggressive in helping troubled borrowers.

“They’ve got to reverse what Countrywide has done,” said Robert Gnaizda, the group’s general counsel. The Countrywide deal, announced Friday morning, raised suspicions among analysts that officials in Washington played a role in making it happen.

Jennifer Zuccarelli, a Treasury Department spokeswoman, said agency officials were aware of the negotiations between Bank of America and Countrywide but “did not encourage” the deal. In a conference call Friday, Bank of America CEO Kenneth Lewis said the government did not promise to take on any financial responsibility for loans on Countrywide’s books that go into default.

Still, some were skeptical about whether the deal would have happened without government pressure.

“I can’t – for the life of me – understand why they would do it otherwise,” said Christopher Thornberg, a principal with Beacon Economics in Los Angeles. “There’s a huge amount of risk here.”

The deal won immediate praise from Rep. Barney Frank, D-Mass., the powerful chairman of the House Financial Services Committee, who has been pressing for tighter regulation of mortgage lenders in the wake of soaring home-loan defaults. Frank said in a statement he has been “encouraged by my initial conversations” with Bank of America.

Countrywide has been criticized for aggressively marketing risky loans to borrowers. Sen. Charles Schumer, D.-N.Y., said the deal “closes an ugly chapter in the subprime mortgage crisis. Hopefully, this deal will clean up the company’s harmful business practices that victimized homeowners across the nation.”

Democrats and consumer groups are expected to keep pushing for legislation to bar abusive lending practices and to allow bankruptcy judges to reduce the size of a borrowers’ home loans in court. Advocates say this change could help 500,000 borrowers or more, compared with around 250,000 likely to be helped by the Bush administration’s plan to freeze introductory interest rates for some borrowers.

Still, some are predicting that, with elections coming, Congress isn’t likely to do much about the housing mess this year.

“This is clearly now at the top of the list of important issue, but Congress is dealing with other things, and they’re all running home as much as they can to campaign,” Brian Gardner, a Washington policy analyst with Keefe, Bruyette & Woods Inc. “I don’t see anything getting done anytime soon.”

AP-ES-01-11-08 1828EST