Bank stocks rallied for a third consecutive day Wednesday, though investor exhilaration over signs of improvement within the sector abated.

The KBW Bank Index rallied in the early morning and faltered in the middle of the day but closed up 3.05%. On Tuesday the index soared 15.56% as investors rewarded the entire sector on news that Citigroup Inc. was operating at a profit.

"Bank stocks had a pretty big day yesterday, and so the market is taking a breather, and I don't think that is unreasonable," Matthew Shields, a trader at FIG Partners LLC, said in an interview Wednesday. "The market will quiet down closer to earnings [season], as things are going to be pretty choppy, but in the meantime, there will be days of big rallies and big sell-offs."

Goldman Sachs Group analysts wrote in a note Wednesday that investors should buy the stocks of a number of companies likely to exit the Troubled Asset Relief Program before their rivals do: JPMorgan Chase & Co., which rose 0.1%, Bank of New York Mellon Corp., which rose 9.6%, Morgan Stanley, which rose 8%, Northern Trust Corp., which rose 2.4%, First Horizon National Corp., which rose 3.8%, Comerica Inc., which rose 8.7%, City National Corp., which fell 0.5%, and U.S. Bancorp, which rose 9%.

First State Bancorp. of Albuquerque rose 74 cents, to $1.54. The company said Wednesday that it was selling its Colorado branches to Great Western Bank and had withdrawn its application for Tarp capital.

Citi climbed 9 cents, to $1.54. Bank of America Corp. rose 14 cents, to $4.93. Wells Fargo & Co. rose 0.6%. State Street Corp. rose 5.5%, and PNC Financial Services Group Inc. rose 0.4%.

Regions Financial Corp. fell 21 cents, to $3.53. Fifth Third Bancorp fell 11 cents, to $1.54, and Valley National Bancorp in Wayne, N.J., fell 2.5%.

The broader markets also fluctuated Wednesday but closed higher. The Dow Jones industrial average climbed 0.06%, and the Standard & Poor's 500 climbed 0.24%.

After giving a speech at the U.S. Chamber of Commerce's economic conference, Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters Wednesday that the country needs a systemic risk regulator.

At the same conference, James Dimon, JPMorgan Chase's chief executive, supported the idea of a systemic risk regulator and said he has seen "modest signs" that the economy is recovering.

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