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By Juan Lagorio

NEW YORK (Reuters) - U.S. credit card defaults rose to record highs in May, with a steep deterioration of Bank of America Corp's lending portfolio, in another sign that consumers remain under severe stress.

Delinquency rates -- an indicator of future credit losses -- fell across the industry, but analysts said the decline was due to a seasonal trend, as consumers used tax refunds to pay back debts, and they expect delinquencies to go up again in coming months.

"I find it hard to believe that it is really a trend. You need to see stabilization in unemployment before you see anything else," said Chris Brendler, an analyst at Stifel Nicolaus. "It is too early to see some kind of improvement."

Bank of America Corp -- the largest U.S. bank -- said its default rate, those loans the company does not expect to be paid back, soared to 12.50 percent in May from 10.47 percent in April.

The bank is paying the price of expanding rapidly in recent years and of holding one of the highest concentrations of subprime borrowers among the top card issuers, analysts said.

In addition, American Express Co, which accounts for nearly a quarter of credit and charge card sales volume in the United States, said its default rate rose to 10.4 percent from 9.90, according to a regulatory filing based on the performance of credit card loans that were securitized.

The credit card company also holds a large exposure in California and Florida, two of the states most affected by the housing crisis and unemployment.

Citigroup -- the largest issuer of MasterCard branded credit cards -- reported credit card chargeoffs rose to 10.50 percent in May from 10.21 percent in April.

"Chargeoffs went up to record highs," said Walter Todd, a portfolio manager at Greenwood Capital Associates, referring to the entire U.S. credit industry.

Credit card losses usually follow the trend of unemployment, which rose in May to a 26-year high of 9.4 percent and is expected to peak over 10 percent by the end of 2009.

If credit card losses across the industry surpass 10 percent this year, as analysts and bank executives expect, loan losses could top $70 billion.

"Until lenders show stabilization then trend-bucking improvement over a several-month period, we remain bearish on credit card lenders -- and the U.S. consumer," said John Williams, an analyst at Macquarie Research.

"We continue to believe that macro challenges and credit quality concerns will pressure U.S. card issuers over the next 12 months," he added.

However, some smaller credit card companies such as Capital One Financial Corp and Discover Financial Services reported defaults rates grew less than expected.

Capital One said its credit card default rate rose to 9.41 percent from 8.56 percent, while Discover said its charge-off rate increased to 8.91 percent from 8.26 percent.

JPMorgan Chase & Co -- the second-largest U.S. bank and the biggest issuer of Visa-branded credit cards -- said its default rate rose to 8.36 percent in May from 8.07 percent in April, but it still holds the best performance among the largest credit card companies.

LOWER DELINQUENCIES

Among credit card issuers, Citigroup and American Express showed a third straight month of a decline in delinquencies in May. While the data was encouraging, analysts said it was too early to claim victory.

"Past May, seasonally it gets more challenging," said Sanjay Sakhrani, an analyst at KBW, as unemployment will keep rising and the tax refund effect will dissipate.

Credit card lenders are trying to protect themselves by tightening credit limits, raising standards and closing accounts. They have also been slashing rewards, increasing interest rates and boosting fees to cushion against further losses.

But that could come to an end soon. The U.S. government approved a law last month limiting credit card fees and interest rates, which is expected to tighten lending further and ultimately boost defaults as consumers find it harder to refinance their debts.

Bank of America's shares closed 2.8 percent lower at $13.33 on the New York Stock Exchange. JPMorgan was down 3.22 percent at $33.99, and Citigroup retreated 2.9 percent to $3.37.

American Express also surprised investors as it sold some loans that it had already written off, reflecting a partial recovery of such losses. Its stock ended 0.3 percent higher at $25.23 on the New York Stock Exchange.

(Reporting by Juan Lagorio, editing by Matthew Lewis)