BOSTON, USA - Shares of Bank of America Corp stock rose more than 3.5 per cent on Wednesday after billionaire hedge fund manager John Paulson told investors that he expects the stock price to almost double in the next two years.

Paulson, who correctly bet that housing prices could fall on a national scale, told investors that he sees considerable upside for America's largest bank's stock price and expects it could rise to US$29.81 by the end of next year, people who have seen his letter said.

Charlotte, North Carolina-based Bank of America has struggled with soured mortgages and received US$45 billion in U.S. government aid. Two months ago its embattled chief executive officer, Kenneth Lewis, surprised his board with plans to leave by the end of the year.

On Wednesday afternoon its shares traded at $16.35 on the New York Stock Exchange, gaining 3.7 per cent or 58 cents.

According to a regulatory filing, Paulson's $29 billion hedge fund held 160 million Bank of America shares, valued at US$2.5 billion, at the end of the third quarter.

Bank of America accounted for 13.6 per cent of Paulson's holdings at the end of the third quarter, according to the filing, which also showed that he had cut his position in the bank during the quarter by selling 8.1 million shares.

The New York-based hedge fund manager, whose bets are carefully watched by other managers, also owned 300 million shares of beleaguered bank Citigroup , valued at US$1.3 billion at the end of the third quarter.

Several other prominent hedge fund managers including, Jim Simons, also added to their Citigroup holdings.

Paulson also told investors that he plans to launch a fund that is dedicated to buying up shares of gold miners and other bullion-related investments, the Wall Street Journal reported on Wednesday.

The new fund is expected to be launched on Jan. 1, the newspaper reported.

A spokesman for Paulson would not comment.

Gold prices have recently shot higher, topping US$1,100 an ounce, and the metal is often considered a good hedge against inflation.

According to the regulatory filing, Paulson owned 42.8 million shares of AngloGold Ashanti Ltd , 30.8 million shares of Kinross Gold Corp and 23 million shares of Gold Fields Ltd .