Financial stocks closed higher Tuesday as Citigroup Inc.'s otherwise lackluster earnings report indicated signs of improvement on the credit-quality front.

The KBW Bank Index rose 1.01%, to 47.15, and the KBW Regional Bank Index rose 1.72%, to 49.13.

Frank Barkocy, the director of research at Mendon Capital Advisors, said market watchers have a "little bit more positive feeling" about banks as Citigroup reported lower reserves and a stabilization in early delinquencies while also reporting a $7.88 billion quarterly loss.

"Loan demand is still pretty weak right across the board, but there are signs of an improving economy," Barkocy said. "That picture could get a lot better, particularly in the latter part of 2010."

Citigroup's shares rose 12 cents, or 3.51%, to $3.54.

First Horizon National Corp also had good news on asset quality in reporting a bigger-than-expected quarterly loss of $70.6 million. Nonperforming loans, chargeoffs and loss provisions were all down from the prior quarter.

Several large and midsize banks closed higher.

Bank of America Corp. rose 0.37%; Wells Fargo & Co., 0.71%; PNC Financial Services Group Inc., 2.03%; BB&T Corp, 1.4%, and Fifth Third Bancorp, 0.26%.

Losers for the day included JPMorgan Chase & Co., off 0.92%; KeyCorp, 1.74%, and U.S. Bancorp, 0.53%.

The broader markets were up Tuesday. The Dow Jones Industrial Average rose 1.09%, and the S&P 500 index, 1.25%.

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