Discover Financial Services , the fourth-largest U.S. credit card network, will cut 500 jobs, or 4 percent of its workforce, in May, hurt by mounting credit losses, the company said on Tuesday.

Last month, Discover posted a deeper-than-expected quarterly operating loss, cut its dividend and set aside more money to cover bad loans as defaults increased.

In an interview with Reuters in March, Chief Executive David Nelms said that the company -- which cut expenses by 7 percent in the first quarter -- expected to keep trimming costs to mitigate the impact of credit losses. He did not rule out layoffs.

Nelms said in a statement on Tuesday: Rising charge-offs, decreases in consumer spending, and the instability of the credit-card securitization markets are affecting the entire industry. Discover must take these additional, difficult steps to manage through this unprecedented environment.

The job cuts will be focused on the company's headquarters in Riverwoods, Illinois.

Discover's charge-off rate -- the percentage of debt it does not expect to be repaid -- climbed to 6.48 percent in the first quarter from 5.48 in the fourth quarter. Its 30-day delinquency rate rose to 5.25 percent from 4.56 percent.

Discover shares were down 52 cents or 6.2 percent at $7.93 on the New York Stock Exchange early on Tuesday afternoon. The stock is down 15 percent so far in 2009.

(Reporting by Juan Lagorio; editing by Matthew Lewis)