Capital One Financial Corp and Discover Financial Services reported credit card defaults fell in October, but delinquencies rose in a sign that consumers remain under stress and the sector can expect more pain ahead.

Capital One's charge-off rate -- loans the company does not expect to be repaid -- for U.S. credit cards fell to 9.04 percent in October from 9.77 percent in September, the company said in a regulatory filing on Monday.

Discover , in a separate filing, said its charge-off rate declined to 8.54 percent from 8.69 percent.

The drop in defaults reflects a decline in late payments earlier this year thanks to tax refunds and economic stimulus actions, and sent shares of Capital One up 2 percent in premarket activity.

But delinquencies, an indicator of future credit losses, resumed an upward trend in August at some companies and climbed more than expected in September, signaling bad loans will rise in coming months and will peak later than originally anticipated.

Credit card delinquencies rose as more Americans lost their jobs.

We believe that credit losses will rise in the coming months and should remain elevated in 2010, thereby pressuring earnings, Credit Suisse analyst Moshe Orenbuch wrote in a note to clients.

Capital One's late payments went up to 5.72 percent from 5.38 percent, while Discover's delinquencies rose to 5.72 percent from 5.57 percent.

Last week, Capital One Chief Executive Richard Fairbank forecast that charge-offs will keep rising and remain elevated throughout 2010, hurt by weakness in the housing market and job losses.

Credit card charge-offs and delinquencies usually track unemployment, which rose to a 26-year high of 10.2 percent in October.

JPMorgan Chase & Co , Bank of America Corp , Citigroup Inc , and American Express Co are also due to report the monthly performance of their credit card portfolios on Monday.

As card losses rose to record highs in recent months, lenders closed millions of accounts, trimmed credit limits and slashed rewards. The companies are also raising fees and interest rates ahead of a new consumer-protection law.

Capital One shares rose 2 percent to $39.60 in premarket activity.

(Reporting by Juan Lagorio; editing by John Wallace)