Bank stocks powered a broad market rally as the prospect of lower interest rates overshadowed the possibility of deepening problems overseas.
For Tuesday, at least, financial stocks were the place to be, with Citicorp adding $6.1875, to $98.6875; Wachovia Corp. $4.3125, to $80.50; and Wells Fargo & Co. $22.3125, to $317.1875.
"You're seeing some reversal in perceptions" that U.S. markets have nowhere to go but down, said James J. McDermott Jr., chairman of Keefe, Bruyette & Woods Inc. "We're finally coming off days of vicious selling."
Demonstrating an almost equally aggressive shift, the Dow Jones industrial average jumped nearly 300 points in early trading, spent most of the day up 250, then spurted to 8,020.78, up 380.53 for the day. At times the action was so brisk that trading imbalances resulted as sellers were sought to fill an overabundance of buy orders.
Federal Reserve Chairman Alan Greenspan primed the market late Friday by suggesting that he may not be averse to reducing rates to help the economy avoid recession. The Fed last acted in March 1997, increasing the rate on overnight bank loans by a quarter point, to 5.50%.
Mr. Greenspan's statements came after disclosures earlier in the week by big banks that their overseas exposures, though large, are not going to cause major disruptions. At the same time, news coming in from foreign markets hinted that some semblance of economic order was evolving.
The developments "could set the stage for a more sustained rally," Mr. McDermott said.
For the day the Standard & Poor's bank index gained 3.74%; the Dow Jones industrial average, 4.98%. The Nasdaq bank index was up 6.99%; the S&P 500, 5.09%.
Searching amid shares that are off as much as 40% from springtime highs, investors took large positions, especially in regionals. Fleet Financial Group, was up $5.3125, to $57.75; Mellon Bank Corp., added $5.375, to $57.75; and U.S. Bancorp, gained $5.8125, to $43.75.
While encouraged by the action, many stock watchers said the market would remain choppy on the likelihood that investors will continue reacting to news each day instead of sustaining long-term positions.
Near-term best bets include niche banks and select large regionals like Bank of New York Co. and First Union Corp., banking analyst Judah S. Kraushaar of Merrill Lynch & Co. told clients early Tuesday.
Strategists at Advest Inc. took a broader approach, upping banks stocks from "market weight" to "overweight."
"The horrific selloff could be close to ending," said analyst Anthony Polini of Advest. "Nothing short of a domestic recession in 1999 warrants the recent steep price declines."
But some market veterans swear they will not get sucked in. "I am not sanguine about bank stocks, not sanguine at all," said Carole S. Berger, a former bank analyst who now heads Berger & Jackson Capital Management, a hedge fund.
"There are still too many unanswered questions out there," including whether the Fed will actually cut interest rates, Ms. Berger said.