The KBW Bank Index rose on New Year's Eve but lost half its value in 2008.
The index rose 3.21% Wednesday. For the full year, it fell nearly 50%.
"This has been a tumultuous year," said Jacqueline Reeves, the managing director of Bell Rock Capital LLC. "The banks were able to fight their way through the headwinds, but liquidity remains an issue, and credit quality remains No. 1 in their minds."
Bank stocks will remain under pressure in the coming months, particularly after fourth-quarter earnings reports are released, Ms. Reeves said.
The stocks, like the broader markets, were buoyed Wednesday by a better-than-expected report on jobs. The Labor Department said initial unemployment claims for the week that ended Dec. 27 fell 16% from the previous week, to 492,000.
The Dow Jones industrial average rose 1.25% Wednesday but fell 34% for the year — the worst decline for the index since 1931. The Standard & Poor's 500 rose 1.42% Wednesday but fell 38% for the year.
Three banking transactions — Bank of America Corp.'s deal to purchase Merrill Lynch & Co. Inc., Wells Fargo & Co.'s deal for Wachovia Corp., and PNC Financial Services Group Inc.'s deal for National City Corp. — were expected to close on or immediately after New Year's Eve. PNC rose 6.1% Wednesday, Nat City climbed 5.5%, B of A rose 6.3%, Merrill rose 3.3%, and Wells rose 2.4%. Wachovia fell 3.3%.
Other gainers Wednesday included JPMorgan Chase & Co., which rose 1.7%; U.S. Bancorp, which rose 3.7%; KeyCorp, which rose 4.7%; and Zions Bancorp., which rose 7.2%.
Citigroup Inc. fell 1.3%. According to news reports, Vikram Pandit, the New York company's chief executive officer; Sir Win Bischoff, its chairman; and former Treasury Secretary Robert Rubin, an adviser to Citi, turned down 2008 bonuses, because of the company's poor performance.
In a memo to employees Wednesday, Mr. Pandit said the 2008 bonuses for members of Citi's senior leadership committee and executive committee will be lower than their 2007 ones.