Bank stocks rallied for a second consecutive day as Citigroup Inc.'s chief executive officer announced that the New York company's performance so far this quarter has been its best since the third quarter of 2007.

The KBW Bank Index soared 15.56%, after news reports that Vikram Pandit informed employees Monday that Citi had an operating profit of $8.3 billion before taxes and "special items" for the first two months of this year. The company's stock increased 40 cents, to $1.45.

The positive news out of Citi has made investors in other banks and the broader markets more hopeful, according to Jacqueline Reeves, the managing director of Bell Rock Capital LLC.

On Monday, Bank of America Corp.'s chief executive officer, Kenneth Lewis, said that most banks are lending and that the Troubled Asset Relief Program is working.

Reeves said, "Those undertones are supporting the oversold markets."

On Monday, the KBW Bank Index, which fell 22.93% last week, rose 5.26%.

The broader markets also rallied Tuesday. The Dow Jones industrial average rose 5.8% and the Standard & Poor's 500 rose 6.37%.

Reeves said that many investors were also encouraged that House Financial Services Committee Chairman Barney Frank said Tuesday that the Securities and Exchange Commission could reimpose the "uptick" rule in about a month, requiring a stock to trade up before investors can short it.

Also Tuesday, The Wall Street Journal reported that government officials have been examining plans to stabilize Citi should the company continue to falter further — though the officials were not expecting that to occur, the paper said, citing sources close to the matter.

Stocks were also buoyed Tuesday after Federal Reserve Board Chairman Ben Bernanke said that the recession should end this year if the banking system stabilizes and that the economy could regain its strength in 2010.

Bernanke made his comments after his speech to the Council on Foreign Relations.

Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said that in addition to Bernanke's remarks and Citi's news, comments made Monday on CNBC by investor Warren Buffett — that the prospects are "better than ever" for Wells Fargo & Co. and U.S. Bancorp — added to the rally's short coverings Tuesday.

"I'm not sure this rally will be sustainable, but it is quite strong," Barkocy said. "I think the economic outlook is still pretty dicey, and we'll probably see some further pressures."

Still, Bernanke's comments about the recession were encouraging, Barkocy said. Investors are also anticipating the upcoming implementation of the Fed's Term Asset-Backed Securities Loan Facility program, and there are indications the Obama administration may finally be addressing the problems surrounding the industry's toxic assets, Barkocy said.

JPMorgan Chase & Co. rose 22.6%, Bank of America Corp. stock increased $1.04, to $4.79, Wells Fargo rose 18.5%, U.S. Bancorp increased 11.9%, Bank of New York Mellon Corp. rose 14.1%, and State Street Corp. rose 18.2%.

According to Dow Jones, B of A said Tuesday that it does not intend to reduce its stake in China Construction Bank Corp. at this time, contrary to earlier comments by Guo Shuqing, the Chinese company's chairman.

B of A spokesman Robert Sticker confirmed the report. "However, I cannot predict whether or when that stance might change," Stickler said by e-mail.

Minutes before the markets closed, Synovus said it cut its dividend 83%, to a penny, enabling the Columbus, Ga. company to retain about $66 million in retained earnings per year.

Synovus rose 51 cents to $3.05.

Among the regional banking companies, BB&T Corp. rose 17.1%, PNC Financial Services Group Inc. rose 25.3%, Capital One Financial Corp. rose 15.1%, Regions Financial Corp. rose 47 cents to $3.74, SunTrust Banks Inc. rose 12.2%, KeyCorp rose 14%, M&T Bank Corp. rose 10.7%, Comerica Inc. rose 13.2%, City National Corp rose 13.2% and Cullen/Frost Bankers Inc. rose 11.4%.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.