Banking stocks had a mixed day, with the megabanks falling sharply on President Obama's proposal to curb lenders' trading activity while some regional names surged on positive fourth-quarter results.
The KBW Bank Index closed down 0.42%, at 47.58, and the KBW Regional Banking Index rose 3.01%, to 50.64.
Peter Cardillo, the chief market economist at Avalon Partners in New York, said the president's proposal to prevent banks from proprietary trading and to reduce their exposures to hedge and private-equity funds weighed on the sector.
"President Obama's bank reform — certainly that spooked the market," he said. "Breaking up banks in that sector … . That could weigh on economic activity. And of course you know that could mean further losses in terms of jobs."
Money-center banks were hurt the most by the news. Bank of America Corp fell 6.19%; JPMorgan Chase & Co., 6.59%, and Citigroup Inc., 19 cents a share, to close at $3.27.
But it wasn't all bad news for banks.
Several regional players traded markedly higher after delivering strong showings in the last three months of the year.
Fifth Third Bancorp, Comerica Inc. and KeyCorp surged after they reported improving credit-quality trends. Comerica and Key's nonperforming assets fell, and Fifth Third's rose only modestly.
Fifth Third's share's rose 6.28%, Comerica's 6.9% and KeyCorp's 5.46%.
Other gainers Thursday included Zions Bancorp., up 2.46%; BB&T Corp, 2.04%; SunTrust Banks Inc., 4.74%, and Regions Financial Corp, 1.93%.
The overall markets fell on economic data showing that the housing and employment markets' weakness was persisting. Investors also fretted that China may tighten lending to prevent inflation.
The Dow Jones industrial average fell 2.01%, and the S&P 500 index, 1.89%.