After declines Monday brought on by dismal earnings preannouncements, bank stocks rose tepidly Tuesday.

The KBW Bank Index closed up 1.36%. Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said in an interview Tuesday that investors probably weighed Monday's preannouncements of bigger fourth-quarter credit losses by banking companies like Synovus Financial Corp. in Columbus, Ga., against the expected passage of the latest economic stimulus plan and all the initiatives that the Treasury Department has begun, including purchases of mortgage-backed securities.

"I think that the market, for the most part, has discounted a lot of the negative news, which is offset by the perception that the various government programs are starting to kick in," he said.

Though bank stocks will probably drop further after banking companies release fourth-quarter results, Mr. Barkocy said, he believes the sector will begin performing better after investors fully discount the expected losses and the various government programs' impact becomes more pronounced.

Bank stocks bounced a bit in the afternoon after the Federal Reserve released the minutes of its December meeting in which the central bank cut the federal funds rate to an all-time-low range of 0.25% to zero in order to stimulate the struggling economy.

However, Standard & Poor's also released a report Tuesday stating that the banking industry will probably suffer additional credit-quality deterioration in 2009 and experience more bank failures.

Bank of America Corp. rose 2.2%. On Tuesday, chief executive and chairman Kenneth Lewis recommended that he and other top executives get no 2008 bonuses because yearend results will be below expectations. The company is also reportedly selling 5.6 billion shares of China Construction Bank Corp., worth $2.8 billion, in order to free up capital.

Separately, the company announced that Dan Sontag will succeed Bob McCann as chief of the Merrill Lynch & Co. brokerage force. Mr. McCann abruptly resigned Monday.

Morgan Stanley's stock price rose more than 11% Tuesday. However, Goldman Sachs Group Inc., fell 0.1%. The gainers included JPMorgan Chase & Co., up 2.2%; Citigroup Inc., 5.4%; State Street Corp., 6.6%; Colonial Bancgroup Inc., 15.7%; and Comerica Inc., 4.9%.

Wells Fargo & Co. rose for much of the day but closed down 1.9%. The San Francisco banking company said late Monday that it had bought about $730 million of loan and lease receivables from GE Healthcare Financial Services – Equipment Finance, a unit of GE Capital that finances dental and eye-care practices and equipment.

United Community Banks Inc. fell nearly 13%. The $8 billion-asset Blairsville, Ga., company said late Monday that its fourth-quarter loan-loss provision could reach $85 million, bigger than expected and more than the $76 million it set aside in the third quarter.

Other decliners Tuesday included U.S. Bancorp, off 1.1%; East West Bancorp, 5.4%; and Huntington Bancshares Inc., 1.2%.

The broader markets also rose modestly on mixed economic reports. The Dow Jones industrial average rose 0.69% and the Standard & Poor's 500 rose 0.78%.

The National Association of Realtors said Tuesday that its index of pending home sales fell 4% in November, to 82.3, much lower than the reading of 88 expected by economists. The Commerce Department said that factory orders declined again in November.

However, the Institute for Supply Management said that its index for the services sector rose to 40.6 in December, from 37.3 the previous month. Economists had expected a reading of 37.

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