Bank stocks rebounded Tuesday, a day after the House rejection of the government's bailout proposal sparked the sector's steepest one-day decline ever.

"Buyers came in today," said Joseph C. Morrissey, managing director of bank and thrift stock trading at Boenning & Scattergood Inc. of West Conshohocken, Pa. Following Monday's negative sentiment, bank investors appeared hopeful "of a deal getting done on Capitol Hill by Friday."

Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said in a midafternoon interview that investors are likely realizing that "maybe things aren't quite as bad" as they seemed Monday. "It's 1:40 p.m., and we haven't had a bank failure today — so knock on wood that we don't have one."

The KBW Bank Index rose 15.7% after a record decline of nearly 21% the day before. The previous record was set on Sept. 22, when bank stocks fell 10.5%. On that day, investors gave back gains from a previous rally sparked by news that the Treasury Department had proposed a bailout.

The broader markets also rebounded from record declines. The Dow Jones industrial average rose 4.7%, or 485 points, after shedding 777.6 points Monday. The Standard & Poor's 500 rose 5.25%.

Lawmakers were on a two-day break Tuesday and Wednesday in observance of Rosh Hashanah. They are expected to address the bailout plan again when they come back Thursday. Observers say lawmakers could bring the same bill back this week.

A number of individual bank stocks rebounded Tuesday, including Wachovia Corp., which rose 90%. On Monday the Charlotte company fell more than 81% after agreeing to sell its banking operation to Citigroup Inc. in the latest big government-assisted bank deal.

On Tuesday the buyer said: "Citigroup, after yesterday morning's announcement of the sale of certain Wachovia businesses to Citigroup, is committed to the orderly consummation of the transaction, including the viability of the businesses" that would remain with Wachovia. "Citigroup continues to do business on normal terms with both the businesses to be acquired and those that will continue in Wachovia."

Mr. Fitzsimmons said that he had not heard of any rumors that Citi would shut down any of Wachovia's operations after the deal closes. Rather, the New York company likely issued the statement to reassure employees and customers in light of the extreme volatility of the market, he said.

Citi's shares rose 15.5% Tuesday after shedding nearly 12% Monday.

Sovereign Bancorp Inc. rose nearly 70% after sinking more than 72% Monday. The Philadelphia company said Tuesday it had hired Paul A. Perrault as its new president and chief executive. (See related story.) He will start his new job Jan. 3 and will succeed Joseph P. Campanelli, who stepped down from the company.

Kirk W. Walters, Sovereign's chief financial officer, will be the interim president and CEO until Mr. Perrault joins the company. Mr. Walters was also named its chief administrative officer.

National City Corp. rose nearly 28.7% after sinking more than 63% Monday. Investors were speculating about whether the Cleveland company would be the next target of a government-assisted deal. (See related story.)

Calls to Nat City were not returned Tuesday. Kristen Baird Adams, a spokeswoman for the company, had said Monday that it has sufficient capital and liquidity, and that the stock plunge that day was "a bit of irrational speculation on unfounded rumors."

Fifth Third Bancorp rose 30.6% after shedding 43.6% Monday in what analysts had called "indiscriminate" selling.

Stephanie Honan, a spokeswoman for Fifth Third, said in an interview Tuesday: "Our message remains the same — we remain a well-capitalized, highly-rated institution."

Other gainers included BB&T Corp., which rose nearly 22%; Bank of New York Mellon Corp., which gained nearly 23%; State Street Corp., which rose 29.3%; JPMorgan Chase & Co., which rose nearly 14%, and Regions Financial Corp, which rose 16.4%.

Peoples Community Bancorp Inc. in West Chester, Ohio, rose 78.8%, and Sun American Bancorp in Boca Raton, Fla., rose 53.9%.

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