Banking stocks were soft Wednesday as investor concerns about which bank would be the next to raise capital to repay federal aid trumped news that the Federal Reserve is still wary of raising interest rates.

The KBW Bank Index closed down 0.42% to 42.35.

Citigroup Inc. in particular weighed down the 24-bank index. Its shares fell 11 cents, or 3.09%, to $3.45, after the Abu Dhabi Investment Authority demanded Citigroup stop a deal that would hurt the fund's investment in the New York financial giant. Citigroup's shares also continued to slide as the market waited for it to price an offering of some $22 billion of shares as part of its deal to return the money it owes to the U.S. Treasury.

Gerald Sparrow, chief investment officer of the Sparrow Growth Fund in St. Louis, said the Citigroup offering rattled investors in banking stocks.

"Everyone is wondering who's next," he said. "There is a lot of nervousness regarding the banks with regards to paying back" the government.

Sparrow said financials and the overall markets had a surprisingly negative reaction to the news that the Federal Reserve planned to keep its benchmark overnight interest rate at virtually zero because the economy is still in a tenuous position. The Fed also reiterated that it would keep rates there for an "extended period."

The Dow Jones Industrial average fell 0.1% while the S&P 500 Index rose 0.11%.

Financial stocks also weren't helped by two bills introduced in Congress Wednesday that proposed reinstating the depression-era rules that separated commercial and investment banks.

Results across the sector were mixed:

Gainers for the day included JPMorgan Chase & Co., which rose 1.22%; Bank of America Corp., 0.59%; Northern Trust Corp., 1.2%; and Capital One Financial Corp., 0.27%.

Names that closed lower included Fifth Third Bancorp, which fell 1.84%; KeyCorp, 1.37%; U.S. Bancorp, 1.34%; and SunTrust Banks Inc., 0.71%.

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