UPDATE 2-State Street adds $250 mln to legal fund, cuts Q3

NEW YORK, Nov 6 (Reuters) - State Street Corp set aside an additional $250 million to cover claims by investors who lost money on risky mortgages, after using up more than two-thirds of a $625 million legal reserve set up in 2007. The Boston-based company created the reserve after mortgage securities in accounts managed by its State Street Global Advisors unit lost value when credit markets tightened in the summer of 2007. This led to many lawsuits by unhappy investors, and by Sept. 30 of this year the reserve had fallen to $193 million. The additional sum boosts the reserve to $443 million. State Street, one of the world's largest institutional investors, reduced its previously reported third-quarter results to reflect the larger reserve. Revised quarterly profit is $327 million, or 66 cents per share, compared with a previously reported $516 million, or $1.04. It also revised its return on equity to 10.2 percent from 16 percent. The company still sees full-year operating profit, excluding items and the additional reserve, of $4.13 to $4.17 per share, down about 16 percent from a year earlier. State Street said the increased reserve should be sufficient, including to cover costs from possible U.S. Securities and Exchange Commission civil charges over its mortgage investments, and a recent $89.75 million settlement with some employee benefit plans. A Manhattan federal judge last month set a Feb. 17, 2010, hearing to consider final approval of the benefit plan accord. State Street has been in talks to resolve an SEC "Wells notice" since late July, the judge said. State Street shares closed Thursday at $42.81 on the New York Stock Exchange. They fell 2.5 percent to $41.75 in premarket trading. (Reporting by Jonathan Stempel; Editing by Derek Caney and John Wallace) Keywords: STATESTREET/ ([e-mail] [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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