Bank stocks fell with the broader markets early Thursday on bad unemployment news but bounced back in the afternoon as investors tested the bottom of the market.
The KBW Bank Index rose 6.61%, the Dow Jones industrial average was up 6.67%, and the Standard & Poor's 500 index rose 6.92%.
Stocks fell in the morning after the Labor Department reported that unemployment claims grew by 32,000 for the week that ended Nov. 8, to 516,000. Economists on average had expected claims to increase to 484,000.
However, bank stocks and the broader markets abruptly changed course in the afternoon.
"It was a dead cat bounce," said Matthew Shields, a trader at FIG Partners LLC. "The Dow was tested at the 8,000 level, but then it rallied back" to close at 8,835.25.
Citigroup Inc. and Bank of America Corp. hit 13-year intraday lows on Thursday but recovered somewhat by day's end (Citi closed off 2%, and Bank of America Corp. up 0.6%). Investors weighed the possible impact on their stocks of a worsening economy and Treasury Secretary Henry Paulson's revelation Wednesday that the government is abandoning its plan to buy troubled assets from banks.
The news brought criticism from several quarters, including lawmakers who saw it as a missed opportunity, bankers who said they have whiplash from the Treasury's about-face, and industry observers who praised the move but openly doubted the professed rationale for it.
Separately, a Wall Street Journal report Thursday said that some Citi board members, unhappy with the New York banking company's posting four straight quarterly losses, are considering ousting Sir Win Bischoff, who was appointed chairman in December after the departure of Charles Prince.
However, Citi's board responded in a press release Thursday that it fully supports Mr. Bischoff and "looks forward to his continued leadership."
Before the rebound, Citi's stock was down as much as $8.27 a share; Bank of America had dropped as much as $15.81.
Vineyard National Bancorp rose 10 cents a share Thursday, to 40 cents. Late Wednesday, the $2.1 billion-asset Corona, Calif., company announced that its chairman, Douglas Kratz, had formed Vineyard Bancshares Inc., a Minnesota corporation, to buy Vineyard for $18 million on the condition that he is able to raise $125 million from investors.
Investors rewarded the company Thursday, though it said in the same press release that it continues to seek bids from other potential buyers. Industry watchers said they wonder whether Mr. Kratz will be able to interest investors in Vineyard, which is reeling from losses on construction loans. Its bank unit has lost roughly $100 million so far this year.
Two more banking companies announced they would participate in the Treasury Department's Capital Purchase Program: Taylor Capital Group Inc. in Rosemont, Ill., said late Wednesday that it is to get $105 million, and Signature Bank in New York said it is to get $120 million. Signature rose 10.1%, but Taylor fell 5.2%.
JPMorgan Chase & Co. rose 7.6%, Wells Fargo & Co. 6.6%, and PNC Financial Services Group Inc. 7.2%.
Other gainers included SunTrust Banks Inc., 4.9%; U.S. Bancorp, 8.8%; Comerica Inc., 7.5%; KeyCorp, 11.24%; and Frontier Financial Corp. in Everett, Wash., 24.2%.