(Reuters) - State Street Corp (STT.N), one of the world's biggest institutional investors, said it would post a fourth-quarter loss after it sold $11 billion in securities to meet new regulatory requirements.

The company said that it will record an after-tax loss of $350 million for the quarter, but operating earnings are still expected to top year-earlier results.

State Street, which manages $2 trillion and has about $20 trillion in assets under custody, sold the mortgage-backed and asset-backed securities after regulators agreed on rules that will require large banks to have a bigger cushion of reserves in order to prevent another financial crisis.

Investors reacted to the news by sending the stock price lower, leaving it down more than 3 percent at $44.60 in early trading.

State Street said the securities sales will increase its balance sheet flexibility in deploying its capital, shore up its capital ratios under evolving regulatory capital standards, and reduce its exposure to certain asset classes.

Since the financial crisis, State Street has tried to return to its historically more conservative roots. It cut costs through heavy layoffs and slashing the dividend. Earlier this year it appointed a new chief executive officer, Joseph Hooley, and most recently it surprised analysts by announcing still more layoffs -- another 1,400 positions are expected to go.

The company previously said the after-tax, unrealized mark-to-market losses in its investment portfolio, which had worried investors in recent years, had shrunk to $281 million in the third quarter, down 72 percent from the second quarter.

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