Financial stocks rallied Thursday on favorable economic news as oil prices fell and economic growth in the second quarter turned out stronger than expected.
The American Banker index of top 50 banks rose 3.27%, and the index of 225 banks was up 4.65%. The S&P 500 increased 2.22%, and the Nasdaq Composite climbed 3.33%. 
Stocks also picked up on positive earnings expectations. A report released Tuesday by Keefe, Bruyette & Woods Inc. predicted per-share earnings growth of 11.1% in the third quarter for the large-cap banks it follows and a more sluggish result of 8.5% for the regionals.
Marni Pont ODoherty, an analyst at Keefe Bruyette, said regional banks in Texas are expected to do better than their peers in other parts of the country.
The Commerce Department reported Thursday that the second-quarter gross domestic product growth rate was 5.6%, topping both the first quarter, when the growth rate was 4.8%, and the 5.3% economists had expected for the second quarter.
Nonresidential fixed investments, personal consumption, and government spending contributed most to the increased growth, the Commerce Department said in a statement.
The stronger than expected growth did not shake analysts view that the economy has cooled of late.
James F. OSullivan, an economist at J.P. Morgan & Co., said that most of the second-quarter numbers are old news, and that the third quarter has been a lot weaker. He expects the GDP to grow 3.0% in the third quarter and predicted that the Fed will stay on hold for a bit as they wait to see how much growth is slowing.
Also on Thursday, Sandler ONeill & Partners initiated coverage of Fannie Mae with a buy rating.
Analyst Mike McMahon wrote in his research report that he believes the clouds of legislative change hovering over Fannie have dissipated, and that he is impressed with its goal to increase its per-share earnings to $6.46 by 2003.
Few companies can publicly announce such a goal with the same degree of confidence as Fannie Mae, he wrote. Fannie Mae has demonstrated mastery of its three primary risks: interest rate, credit, and political.
Mr. McMahons 12-month price target of $82 represents a 20% upside potential, he said.
He expects the $609 billion-asset mortgage company to report third-quarter per-share earnings of $1.08, up from $1.05 in the second. He also expects the stock to earn $4.26 for the full year and $4.87 next year.
Fannies stock climbed $2.8125 Thursday, or 4.12%, to close at $71.
Elsewhere in the market, Erich Rothmann, an analyst at First Security Van Kasper, reiterated his buy rating for PNC Financial Services Group Inc. on Wednesday and raised his price target for the stock $18, to $80. Nancy A. Bush of Prudential Securities reiterated her accumulate rating and her price target of $70 for the stock Wednesday.
PNC picked up $1.875 Thursday, or 2.94%, to close at $65.6875.
