Morgan Stanley wrote down its subprime-infected mortgage holdings by a greater-than-expected $9.4 billion and received a $5 billion cash infusion from state-controlled China Investment Corp.

The second-largest American securities firm rose 4.2% in New York Stock Exchange composite trading. The “significant capital raise” and write-downs may suggest to investors that Morgan Stanley has put the worst of its subprime losses behind it, an analyst at Sandler O’Neill & Partners LP, Jeffery Harte, wrote in a note yesterday.

The company’s chief executive officer, John Mack, called the fourth-quarter loss of $3.56 billion, the first in the New York-based firm’s history, “embarrassing.” He’ll forgo his bonus for the year, the company said yesterday in a statement.

Mr. Mack’s strategy of expanding in mortgages and making bigger trading bets backfired as losses from securities linked to home loans more than doubled in November. He ousted a co-president, Zoe Cruz, who had overseen the fixed-income unit responsible for the mortgage trades, last month and promoted James Gorman and Walid Chammah, who previously ran wealth management and the New York-based firm’s European operations.

“They quantified damages, quantified remaining exposure, and assigned accountability,” a manager of $1.6 billion, including Morgan Stanley shares, at Renaissance Financial Corp. in Leawood, Kan.,DouglasCiocca, said. There’s “a bit of a relief rally given that the stock was heavily shorted and down 28% since November 1.”

The loss of $3.61 a share in the three months ended November 30 compares with net income of $1.98 billion, or $1.87, a year earlier. Analysts were estimating a loss of 39 cents, according to a survey by Bloomberg. The company, which went public in 1986, has never reported a loss.

Morgan Stanley had dropped 29% this year in NYSE trading through Tuesday, the worst annual decline since 2001. The shares rose $2.01 to $50.08 at 4:03 p.m. in New York.