Bank stocks extended their rally Monday as investors girded for this week's kickoff of earnings season.

The KBW Bank Index rose 7.8%, after gaining 20% Thursday on positive earnings news from Wells Fargo & Co. The markets were closed for Good Friday.

"There's some impressive follow-through in some of the bank stocks today, as some people apparently are optimistic about how earnings will go," said Matthew Shields, a trader at FIG Partners LLC. But "there's a pretty large disconnect on how the markets are going and how our own investors are feeling about earnings — it's an anomaly right now."

Shares of First Niagara Financial Group Inc. climbed 3.9% to close at $14.09.

The Lockport, N.Y., company said Monday that its first-quarter net income was relatively flat, at $18.7 million. First Niagara also announced a $300 million stock offering, which it will use in part to repay the $184 million in capital it raised this year under the Treasury Department's Capital Purchase Program.

Frederick Cannon, chief equity strategist at KBW Inc.'s Keefe, Bruyette & Woods Inc., said in a research note Monday that Wells Fargo may need $50 billion to repay the Treasury and reserve for loan losses as the economy worsens.

Wells could wind up with $120 billion of "stress" losses if the recession continues into 2010 and the unemployment rate reaches 12%, Cannon said. That means it may need to raise an additional $25 billion in capital on top of the $25 billion it has already received from the Treasury, he said.

After fluctuating much of the day, Wells shares closed up 0.31% Monday after soaring 31.7% Thursday, when the San Francisco company announced that it expects a first-quarter profit of $3 billion, or 55 cents a share.

Citigroup Inc.'s stock rose 76 cents to $3.80. In addition to selling Nikko Cordial Securities in Japan, the New York company is also reportedly seeking to sell Nikko Citigroup, its investment banking arm in Japan, and fund manager Nikko Asset Management.

Other gainers Monday included JPMorgan Chase & Co., which rose 2.9%, Bank of America Corp., 15.4%, Bank of New York Mellon Corp., 9.4%, U.S. Bancorp, 2.1%, and State Street Corp., 7.5%.

BB&T Corp. shares closed up 3.4%. Raymond James analysts downgraded the Winston-Salem, N.C., company's stock to "market perform," from "outperform."

Among the regionals, PNC Financial Services Group Inc. rose 4.7%, SunTrust Banks Inc. 13.6%, M&T Bank Corp. 2%, Comerica Inc. 9.4%, Regions Financial Corp. 16.7% and Fifth Third Bancorp, 76 cents to $4.34.

The broader markets fell much of the day on expectation of weak corporate earnings. The Dow Jones industrial average fell 0.32%, and the Standard & Poor's 500 rose 0.25%.

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