They can be converted into common stock at $18 a share. If that happens, Charlotte, N.C.-based Bank of America won't be able to trade the stock for 18 months after conversion, the two companies said in a statement.

Separately, Wachovia upgraded Countrywide to market perform from underperform, citing the Bank of America investment.

"We believe that Countrywide Financial still faces many near-term challenges. But the influx of cash and capital reduces the potential for a catastrophic liquidity event, in our view," Wachovia told clients early Thursday. "Recent actions also suggest that the Federal Reserve is willing to provide liquidity despite lingering inflation concerns."

Countrywide's shares have been hammered this month as a broadening crisis in the mortgage business cut off the company's access to its usual sources of borrowing in the market.

Countrywide had to tap an $11.5 billion loan facility from 40 banks last week and said it was planning to funnel most of its mortgage origination through its bank. But then Countrywide had to head off a run on its bank as some depositors withdrew their savings. See full story.

"We hope this investment will be a step toward a return to a more normal liquidity in the mortgage markets," said Kenneth Lewis, Bank of America's chief executive, in a statement. "In the current turmoil the stock market has been underestimating the value in Countrywide's operations and assets."

Bank of America's decision also highlights the importance of Countrywide's role in providing money for home purchases across the U.S., Lewis added, noting that Countrywide services the mortgages of one in seven American households.

"Bank of America's investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success," said Angelo Mozilo, chief executive of Countrywide, in the statement.

Bank of America is buying these positions to gain control of an additional financial product, Richard Bove, an analyst with Punk Ziegel & Co., said in a note to clients. "It can do these deals because the bank has sizable financial resources to bring to bear whenever opportunities like Countrywide arise."

Other analysts cautioned that this may not be a prelude to a merger. Bank of America has been slowly but successfully building its mortgage portfolio and is the fifth-biggest lender, Jeff Harte, an analyst with Sandler O'Neill & Partners, wrote in a note to clients.

"Management stressed that this is a passive investment and the agreement has restrictions prohibiting B. of A. from acquiring additional voting securities of Countrywide," Harte wrote. Strategically, we expect B. of A. management to remain focused on improving the relative positioning of its existing mortgage franchise."

Standard & Poor's on Thursday affirmed its A-/A-2 counterparty credit ratings for Countrywide and kept the company on creditwatch negative.

S&P analyst Victoria Wagner cited the "continued stress in the mortgage asset-related markets, dislocation of asset-backed commercial paper markets, and mortgage pricing volatility, all of which is presenting liquidity and profitability challenges in the near term."