Bank stocks and the broader markets fluctuated Thursday but closed down after a smattering of mixed economic news.
The KBW Bank Index rose in early trading after better-than-expected economic reports from the Labor Department and the Conference Board in New York but closed down 2.8%.
Joseph C. Morrissey, a managing director of bank and thrift stocks at Boenning & Scattergood Inc. in West Conshohocken, Pa., said that investors were still digesting the impact of the Federal Reserve's decision Tuesday to cut its federal funds rate to an all-time-low range of 0.25% to zero. Bank stocks rose more than 10% that day on the news.
"The marketplace is making adjustments as far as pricing is concerned," he said Thursday. "Banks have been trailing the broader market for the last couple of days. They are still under some pressure, but you have options expirations tomorrow, and the marketplace is looking to get a feel for how options are going to expire."
Mr. Morrissey said that it remains to be seen whether there will be a "Santa Claus rally" this year.
The Dow Jones industrial average closed down 2.49% on Thursday, and the Standard & Poor's 500 index fell 2.12%.
The Labor Department said that initial unemployment claims for the week that ended Dec. 13 fell to 554,000, compared to 575,000 the previous week. Economists on average had expected 558,000 new claims.
Also Thursday, the Conference Board in New York announced that its leading economic indicators fell 0.4% in November, less than the 0.5% decline that economists on average had expected.
However, negative corporate earnings news during the day probably discouraged investors, traders said.
Scott Anderson, a senior economist at Wells Fargo & Co., wrote in a research note Thursday: "The U.S. economic outlook has deteriorated rapidly in recent months. I believe we are in the worst recession in the post-war period in terms of both duration and depth. Some highlights from the year ahead: another 3.7 million jobs lost, an unemployment rate jumping to between 8.5 and 9.0 percent, a period of deflation, double-digit declines in business spending and export growth, but a housing market that enters the road to recovery."
The Bush administration said Thursday that it may consider an "orderly" bankruptcy for the three big U.S. automakers. On Wednesday, Chrysler LLC said that it was closing its 30 U.S. factories for a month, two weeks longer than originally planned.
Federal regulators adopted rules Thursday that will change the face of the credit card industry. Largely unchanged from the initial proposal in May, the rules would ban certain card practices, limit when credit card companies can raise interest rates, dictate payment allocation methods to benefit consumers, and curtail late fees.
Bankers have argued that the changes go too far — particularly by limiting card companies' ability to raise interest rates and price for risk. Enforcing these rules will produce higher rates across the board for consumers, and fewer cards, they said.
Decliners Thursday included Citigroup Inc., off 5.1%; JPMorgan Chase & Co., 5.2%; Bank of America Corp., 4.5%; and Bank of New York Mellon Corp., 5.9%.
Other decliners were Regions Financial Corp., down 4.7%, PNC Financial Services Group Inc., 3.3%, and U.S. Bancorp, 2.7%.
City National Corp. rose 1.6%. Keefe, Bruyette & Woods Inc. analyst Brian Klock upgraded the Los Angeles company's stock Thursday, from "market perform" to "outperform."
"We believe that" City National "has one of the strongest balance sheets and business models in our coverage universe, with solid core profitability," he wrote.
Fifth Third Bancorp rebounded somewhat Thursday, to close up 1.3%. On Wednesday, the Cincinnati company's shares fell 6% after it sliced its quarterly dividend by 93.3%, to a penny.
Other gainers Thursday included KeyCorp, up 1.6%; Marshall & Ilsley Corp., 0.8%; Comerica Inc., 0.1%; and Frontier Financial Corp. in Everett, Wash., 0.6%.