UPDATE 4-Litigation costs hit Bank of America's quarterly profit

* Q2 earnings $0.19/share vs $0.32 year earlier

Litigation expenses $4 bln vs $471 mln a year earlier

* Revenue from fixed income, currencies and commodities rises 5 pct

* Shares fall 2 pct

(Adds comment from conference call, detail on results)

By Peter Rudegeair and Tanya Agrawal

July 16 (Reuters) - Bank of America Corp said second-quarter profit fell 43 percent, a bigger decline than analysts had expected, after the bank posted $4 billion of litigation expenses linked to mortgage disputes following the financial crisis.

The expenses included a $650 million settlement with American International Group and money it set aside for an expected settlement with the Department of Justice. Bank of America has already agreed to pay $50 billion to settle disagreements stemming from the market meltdown in 2008.

The expenses far exceeded the $471 million in legal charges the bank posted in last year's second quarter, although it was less than the $6 billion it recorded in this year's first quarter.

Bank of America has been negotiating a multibillion dollar settlement with the Department of Justice to resolve investigations into the sale of mortgage-backed bonds.

The bank has offered to settle for about $12 billion, while the Justice Department has suggested $17 billion, sources familiar with the matter have said.

After the settlement with AIG and others, "we feel like we have gotten a large chunk of this behind us," said Bank of America Chief Financial Officer Bruce Thompson on a conference call with reporters.

The second-largest U.S. bank said on Wednesday that earnings for common shareholders fell to $2.04 billion, or 19 cents per share, in the three months ended June 30 from $3.58 billion, or 32 cents per share, a year earlier.

Analysts on average had expected earnings of 29 cents per share, according Thomson Reuters I/B/E/S. It was not immediately clear which expenses should be excluded from the bank's results to most directly compare to estimates, but the posted results fell short of the average forecast, Thomson Reuters I/B/E/S said.

The bank's share were down 2 percent or $0.31 at $15.50 in morning trading.

Many of the bank's main businesses posted higher profits. Retail banking profit, including credit cards, rose 28.5 percent to $1.79 billion. Commercial and investment banking profit rose 4.3 percent to $13.5 billion, and sales and trading profit jumped 14.44 percent to $1.1 billion. The trading results were helped by a 5 percent increase in revenue in bond trading to $2.4 billion, excluding an accounting adjustment.

But there were negatives in the results beyond the litigation expenses: excluding accounting adjustments, the bank's revenue fell to $21.7 billion from $22.7 billion in the same period of 2013. Operating expenses rose to $18.54 billion from $16.1 billion.

The bank posted a loss of $2.8 billion in its consumer real estate services business, compared with a loss of $930 million a year earlier, again largely due to a rise in litigation expenses. First-mortgage loan volume slid 59 percent as refinancing demand weakened.

Still, CEO Brian Moynihan struck an upbeat note.

"The economy continues to strengthen ... Consumers are spending more, brokerage assets are up by double digits and our corporate clients are increasingly turning to us to help finance business expansion and merger activity," he said.

(Reporting by Tanya Agrawal and Peter Rudegeair; Editing by Ted Kerr and Phil Berlowitz)