Bank stocks and the broader markets were lifted Tuesday by a better-than-expected consumer confidence report.

The KBW Bank Index rose 4.01%, the Dow Jones industrial average rose 2.37% and the Standard & Poor's 500 rose 2.63%. All three indexes started their ascent in the morning after the Conference Board announced that its Consumer Confidence Index rose to 54.9 in May from a revised 40.8 in April. Economists had expected the index to rise to 42.3.

"Consumer confidence tends to have a really high correlation with bank stocks. When consumers feel comfortable, they are out spending money, and banks benefit from that," said James Bradshaw, an analyst at Bridge City Capital LLC in Portland, Ore.

Frank Barkocy, director of research at Mendon Capital Advisors Corp., said investors were swayed more by the positive consumer confidence report than by continued bad news about U.S. home prices. According to the Standard & Poor's/Case-Shiller National Home Price index, released Tuesday, home prices fell 19.1% in the first quarter from a year earlier, the most in more than two decades.

"The market seems to be overriding some of those negatives and looking at the broader picture," Barkocy said.

The S&P 500's biggest gainer was Zions Bancorp., whose stock soared 14% after Morgan Stanley analyst Ken Zerbe upgraded the Salt Lake City company's stock to "overweight," from "equal weight."

JPMorgan Chase & Co. rose 6.2% after a Bloomberg News report said the New York company would be receiving a $29 billion windfall because of an accounting rule that enables it to post accretable yield on the bad loans it acquired from Washington Mutual Inc., which failed last September.

Three other companies that recently completed acquisitions also stand to benefit from the accounting rule, the report said: Wells Fargo & Co., which rose 5.5%, PNC Financial Services Group Inc., which rose 5%, and Bank of America Corp., which fell 0.8% even though Paul Miller at Friedman, Billings, Ramsey & Co. Inc. upgraded the Charlotte company's stock to "market perform," from "underperform."

Colonial BancGroup Inc. rose 13 cents, to $1.48. The Montgomery, Ala., company said late Friday that it had satisfied the due diligence contingency for a $300 million infusion of capital from a group of investors led by Taylor Bean & Whitaker Mortgage Corp.

Other gainers Tuesday included U.S. Bancorp, 6.8%; SunTrust Banks Inc., 2.1%; Marshall & Ilsley Corp., 5.7%; Comerica Inc., 3.9%; Capital One Financial Corp., 3.3%; M&T Bank Corp., 4.9%; and Citigroup Inc., which rose 10 cents, to $3.77.

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