NEW YORK (Bloomberg) - Charles Schwab Corp. said it agreed to pay $200 million to settle claims that it misled investors on the amount of mortgage-backed securities held by its Schwab YieldPlus Fund.

Schwab signed a memorandum of understanding to settle the claims filed in 2008 by paying the $200 million to plaintiffs, without admitting liability and avoiding trial, the San Francisco-based company said today in a statement. The settlement agreement cuts first-quarter net income by $105 million, or nine cents a share, bringing the company's net income reported last week down to $14 million, or 1 cent per share.

The lawsuit alleged that Schwab incorrectly described the fund, once the world's largest short-term bond fund, as "safe". The plaintiffs sought damages of as much as $802 million, the estimate of losses made by their lawyers' experts. A trial was scheduled for May.

"The settlement removes the overhang that has been on the stock since charges were first brought forward in March 2008," UBS AG analyst Alex Kramm wrote in a note today to clients. Mr. Kramm said litigation-related costs estimates were as high as $3 billion. "Discussions with investors suggested any settlement below a $300 million to $400 million range would likely be received as a positive."

The shares climbed one percent to $19.25 at 11.29 a.m. New York time. They have risen 1.3 percent this year through yesterday, compared with a five percent gain in the NYSE Arca Securities Broker/Dealer Index.

On January 4, Schwab's stock advanced to $19.78, a level last reached in November 2008.

Schwab had denied wrongdoing, saying the fund's losses were caused by the collapse of the financial markets. US District Judge William H. Alsup denied Schwab's bid to dismiss the case earlier this month.