Bank stocks rebounded from morning losses Wednesday to finish up for the second day in a row, after Federal Reserve Chairman Ben Bernanke again allayed investor fears by saying no full-scale nationalization is planned for the banking industry.
The Treasury also released details Wednesday of the so-called "stress tests" it plans to use to gauge the health of the biggest banking companies.
The KBW Index, which had fallen in morning trading Wednesday, rallied in the afternoon to close up 2.43%. On Tuesday, the index gained 13.59% after several days of declines last week.
Earlier Wednesday traders said banking stocks were shaping up to give back Tuesday's gains, then they rallied on the news from the Treasury Department and the Federal Reserve.
"I think bank investors are very encouraged. We haven't seen two up days like that," said Tim Curran, an analyst at Morgan Keegan & Co.
The Dow Jones industrial average, meanwhile, fell 1.09% after having hit an 11-year low on Monday. The Standard & Poor's 500 index declined 1.07%.
Mr. Bernanke, in his second day of congressional testimony, told the House Financial Services Committee he defines nationalization as "the government seiz[ing] the bank and zero[ing] out its shareholders … . We don't plan anything like that." However, he said that the government may take "substantial" stakes in Citigroup Inc. or other banks.
Citigroup closed down 8 cents, at $2.52 a share, after rising 46 cents a day earlier and trading as high as $2.95 on Wednesday.
Other major banking stocks pared early losses after Mr. Bernanke's comments. Bank of America Corp., which was down in morning trading, closed the day up 43 cents, at $5.16 a share. U.S. Bancorp, also down early, closed up 22 cents, at $12.76. JPMorgan Chase & Co. rose 3.4%, to $21.75; and Wells Fargo & Co. was up about 3%, to $13.44.
A number of regional banks also rose. Fifth Third Bancorp rose 49 cents, to $1.94; Regions Financial Corp. 47 cents, to $3.76; Huntington Bancshares Inc. 25 cents, to $1.66; and SunTrust Banks Inc. $1.66, to $11.
The gains came as the overall market was dragged down by more bad news on the housing front. The National Association of Realtors said Wednesday that existing-home sales fell 5.3% in January from the month before, to an annual rate of 4.49 million. On Tuesday, the Federal Housing Finance Agency had reported that an 8.2% fourth-quarter drop in home prices was the steepest decline since 1991.