Banking stocks rose Friday as investors greeted with a shrug the Federal Reserve's raising of its discount rate.

The KBW Bank Index was up 1.28%, at 46.66.

The stocks traded higher despite the Fed's announcement late Thursday that it would raise the discount rate to encourage banks to seek out private sources for short-term funds. Some in the market greeted the change as a signaling that the banking industry is getting stronger.

"These actions won't have much impact on banks," Matthew O'Connor, an analyst at Deutsche Bank, wrote in a research report. Though the change could raise concern that further rate increases are on the horizon, he said, it could actually "keep long-term (and mortgage) rates from moving up as confidence rises that the Fed will successfully drain excess liquidity" from the system.

One high-profile regulator, St. Louis Federal Reserve Bank President James Bullard, said separately on Thursday that the central bank probably would not boost its federal funds rate until 2011, according to Dow Jones.

In other news, a positive report on consumer prices from the Labor Department indicated that the financial recovery is not generating much inflation.

Wells Fargo & Co. rose 0.11%; JPMorgan Chase & Co. fell 0.94%, and Citigroup Inc. was off a penny, to $3.42 a share.

Bank of America Corp. was unchanged.

Among regional banking companies, U.S. Bancorp was up 0.96%; M&T Bank Corp, 1.55%; Fifth Third Bancorp, 2.6%, and Zions Bancorp., 4.06%.

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