(Reuters) - The Federal Reserve objected to Bank of America Corp's plans to boost its dividend and told the bank to revise its proposal, sending shares down 1.7 percent in premarket trading.

BofA had hoped to be in a second wave of banks raising dividends in the second half of this year, but unlike some of its major rivals, it is still struggling to be consistently profitable.

The largest U.S. bank by assets said on Wednesday it still hopes to increase its dividend in the second half and intends to submit a revised proposal to the Fed.

The news highlights the split between the largest U.S. banks. While some are aggressively boosting dividends, others are still coping with loan losses and looking to post consistent profits as they recover from the financial crisis.

"This is a definite black mark for Bank of America and (Chief Executive) Brian Moynihan," said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel Inc.

"There's still some weakness in the banks," he said.

On Friday, the Fed approved dividend increases for a group of banks after conducting a second round of stress tests on the 19 largest U.S. banks.

BofA reported a net loss of $2.2 billion for 2010, despite showing improvements in problem loans and loan losses.

It posted losses in each of the last two quarters and has projected lower revenue due to new industry regulations.

In the 2010 fourth quarter, BofA recorded a charge of $4.1 billion related to the settlement of mortgage repurchases with government-owned mortgage finance companies Fannie Mae and Freddie Mac.

The charge was paired with a $2 billion writedown in the value of its home loans business. That followed a $10 billion third-quarter writedown in the value of its card business after new regulations curbed certain kinds of fees charged to customers.

Moynihan said at the company's investor day in March that increasing the dividend -- and returning excess capital to shareholders -- was a top priority.

BofA slashed its quarterly dividend twice in 2008, from 64 cents per share down to 1 cent per share.

Moynihan has said he wishes the bank had paid lower dividends in the runup to the financial crisis, because keeping more capital would have left the bank better positioned to weather the storm.

BofA shares were down 1.7 percent to $13.64 in premarket trading.

(Reporting by Dan Wilchins in New York and Joe Rauch in Charlotte, N.C., editing by John Wallace)

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