Financial stocks rallied for a second straight day Wednesday but with decidedly more oomph after Federal Reserve Vice Chairman Donald Kohn indicated a willingness on the part of the central bank to cut interest rates at its Dec. 11 meeting.
Mr. Kohn said in a speech that "nimble" economic-risk policies are needed.
Joe Morrissey, the vice president of bank stock trading at Boenning & Scattergood Inc., a boutique brokerage firm in West Conshohocken, Pa., said: "Financials obviously had a great day, leading the market in a lot of ways. The sector was due for a rally at this point in time and the comments from the Fed surely helped that."
The American Banker index of the top 50 banking stock and its index of 225 stocks both gained 5%, and the thrift index rose 5.33%. The Dow Jones industrial average rose 2.55%, closing up 331 points on the day. The Standard & Poor's 500 rose 2.86%.
"We've just been due for a bounce," said Matt Shields, a trader with FIG Partners LLC in Atlanta. "I'd expect more volatility. I just think the volatility is here to stay for a little bit."
Further clarity on the credit situation and news that companies like Freddie Mac and Citigroup Inc. are still able to raise large sums of capital may have served to ease some investor fears, observers said.
Wells Fargo & Co. announced late Tuesday that it was setting aside $1.4 billion this quarter because of larger losses on home equity loans. Its shares initially fell in after-market trading but rose 2.98% Wednesday. Many of the loans in the $11.9 billion affected portfolio were acquired from other sources rather through Wells' own channels. Wells plans to sell the portfolio, has tightened lending standards, and is using fewer third-party-originated loans.
Freddie Mac's shares closed up 14.34% after the government-sponsored enterprise said late Tuesday that it was cutting its dividend in half, to 25 cents, in the fourth quarter and selling $6 billion in preferred stock. Fannie Mae's shares rose 9.86%.
Other large-cap financials also posted strong gains. Washington Mutual Inc.'s shares jumped 6.4% and Citi's rose 6.5%. Bank of America Corp. rose 4.45%, Wachovia Corp. 4.8%, and JPMorgan Chase & Co. 3.8%.
Regionals also gained.
KeyCorp rose 6.4%, National City Corp. 7.4%, Regions Financial Corp. 5.4%, and PNC Financial Services Group Inc. 6.3%.
Shares of BankUnited Financial Corp. of Coral Gables, Fla., rose 10.5% and BancorpSouth Inc. of Tupelo, Miss., rose 7.1%.
Shares of Franklin Credit Management gained 53.85%. Earlier this week the Jersey City company said it was to be delisted from the Nasdaq market Thursday because it had not filed its quarterly report with the Securities and Exchange Commission. It intends to do by Dec. 31. Franklin's shares fell 25.71% Tuesday.
Wednesday was "definitely a nice day," said Stuart Simpson, an equity trader at First Horizon National Corp.'s FTN Midwest Research Securities Corp.
Decliners included Countrywide Financial Corp., 2.8%; Fremont General Corp. of Santa Monica, Calif., 3%; Bank of the Carolinas in Mocksville, N.C., 2.5%; and Coast Financial Holdings Inc. of Bradenton, Fla., 3.5%.