Bank stocks rose Thursday as investors anticipated passage of some kind of government bailout plan to help struggling banks.
Congressional leaders said they had reached a deal in principle on the proposal to bail out the financial markets, but they provided no details, and it was unclear whether Republicans would sign on. (See related story.)
The KBW Bank Index rose 2.17%, the Dow Jones industrial average 1.82%, and the Standard & Poor's 500 index 1.97%.
"It looks like something is going to happen in Congress quickly regarding the government's investment in the financial sector, which would open up liquidity channels," said Michael O'Boyle, a trader at Sterne Agee Financial Services Inc.
Bank stocks fell in early trading after the Labor Department's Thursday morning report that new claims for unemployment benefits had grown by 32,000 in week ended Sept. 20, to a seasonally adjusted 493,000, much higher than the 445,000 that analysts had predicted.
However, 50,000 of those claims were made by people displaced by hurricanes Gustav or Ike.
By midday banks began to rise after top leaders of both congressional banking committees and representatives from both political parties emerged from three hours of negotiating to say they had worked out a final deal on a bill to create a facility to buy troubled loans.
But Rep. Spencer Bachus, the top Republican on the House Financial Services Committee, muddied the waters later in the afternoon by saying: "There was progress on many issues but no agreement other than to continue discussions."
Bank of America Corp. closed up 3.9% after Dow Jones reported that Merrill Lynch & Co. Inc.'s chief executive, John Thain, would stay on board after Bank of America completes its $50 billion purchase of the investment banking company. The deal was announced Sept. 14.
Citigroup Inc. rose 2.4% on a Bloomberg News report Wednesday that it may sell its Primerica life insurance unit to Protective Life Corp. once the Birmingham, Ala., insurer receives an investment from J.C. Flowers & Co., a New York private-equity firm run by J. Christopher Flowers.
Other gainers included State Street Corp., 13%; JPMorgan Chase & Co., 7.3%; Regions Financial Corp., 6.4%; and Columbia Bancorp in The Dalles, Ore., 56.4%.
Capital One Financial Corp. fell 5.1% after the McLean, Va., company announced that it would price its offering of 14 million common shares at $49 a share — a 6.6% discount to the company's closing stock price of $52.49 on Wednesday.
Capital One said it expects to realize $660 million from the offering.
Washington Mutual Inc. fell 25.2%. The Wall Street Journal reported Thursday that the Seattle company has approached two private-equity firms, Carlyle Group and Blackstone Group, to buy it. The two firms could be joined by Texas billionaire Gerald Ford, who once invested in Golden State Bancorp, which was bought in 2002 by Citigroup.
Other decliners included Team Financial Inc. in Paola, Kan., 17.6%; Elmira Savings Bank FSB in Elmira, N.Y., 17.2%; and Temecula Valley Bancorp in Temecula, Calif., 17.2%.