NEW YORK (Reuters) - Merrill Lynch & Co said on Friday it would write down $5.5 billion for bad bets on subprime mortgages and leveraged loans, becoming the only major Wall Street brokerage to take a loss from turmoil in the credit markets.

Merrill said it would post a third-quarter loss of up to 50 cents a share after writing down $4.5 billion in collateralised debt obligations (CDO) and subprime mortgage holdings. Merrill had been expected to earn $1.43 a share in the third quarter, according to Reuters Estimates.

This loss would be the first for Merrill since the fourth quarter of 2001, according to Reuters Estimates data.

It is also taking writedowns, on a gross basis, of $967 million related to all non-investment grade lending commitments, regardless of the timing of funding or closing, the company said.

Washington Mutual Inc and Sovereign Bancorp issued warnings on Friday. Citigroup Inc, UBS and Deutsche Bank have issued similar warnings.

Moody's and Fitch Ratings lowered Merrill's outlook to "negative" from "stable." Their current ratings are the fourth-highest investment grade.

"The core issue is whether or not it is going to be enough. Merrill had huge exposures to the mortgage sector, the CDO sector and the collateralised loan sector," said Sean Egan, managing director of independent credit ratings firm Egan-Jones Ratings Inc.