Bank stocks and the broader markets rallied Monday on encouraging economic news and positive comments about the sector.

The KBW Bank Index rose 14.69%. The Dow Jones industrial average 2.61%, and the Standard & Poor's 500 rose 3.39%.

The Commerce Department said March construction spending rose 0.3% from February, to $969.7 billion. Economists on average had expected a 1.5% decline. Also, the National Association of Realtors said Monday that its March index of pending home sales in rose 3.2% from February, to 84.6.

Greg Gersack, managing principal at FIG Partners LLC, said economic reports, in conjunction with Warren Buffett's positive comments about several banking companies, drove bank stocks higher. At Berkshire Hathaway Inc.'s annual meeting this weekend, Buffett said he would buy all the shares of Wells Fargo & Co. and U.S. Bancorp if regulators would let him, according to news reports.

Wells rose 23.7% Monday, and U.S. Bancorp rose 13.2%.

Bank stocks were further buoyed after David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said the results of the government's stress tests, due Thursday, may not be as bad as once feared.

Gersack said the rally may not last long.

"There will be continued realization that credit quality won't be getting better anytime soon, and that'll probably end up having a lagging effect on the space towards the latter part of the week," he said.

Bank of America Corp. rose 19.3% Monday, while JPMorgan Chase & Co. rose 10.2%. PNC Financial Services Group Inc. climbed 14.4%, and Citigroup Inc. rose 23 cents, to $3.20.

Among regionals, SunTrust Banks Inc. rose 25.1%, while Marshall & Ilsley Corp. rose 21.7%. Comerica Inc. rose 16.2%. KeyCorp rose 19.4%. Zions Bancorp. jumped 20%, and Fifth Third Bancorp rose 98 cents, to $4.83.

The sector's rally was not slowed by a midafternoon report from Standard & Poor's Corp. that it had put its ratings on 23 banking and thrift companies on watch for possible downgrades.

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