Banking stocks posted gains Tuesday, rebounding from Monday's drop.

The KBW Bank Index rose 2.3%, outpacing other major indices. The Dow Jones industrial average rose 0.5% and the Standard & Poor's 500 index rose 0.7%.

Michael O'Boyle, an investment banker with Sterne Agee & Leach Inc., said investors are showing renewed interest in the banking sector as more banks hold successful common stock sales. "The confidence is being built up as people see these offerings are being funded," he said.

A wild card is the Federal Reserve, which began a two-day meeting Tuesday. While no one expects policymakers to budge on interest rates, O'Boyle said the minutes of the meeting could be telltale for bank stocks, and as investors look ahead over the next few months.

Analysts' notes played a factor Tuesday with some banking companies.

First Financial Bancorp's shares jumped 17.3% after Sandler O'Neill & Partners LP raised its rating for the Cincinnati company to "buy" from "hold." Analyst Scott Siefers wrote in a note to clients that the takeover of branches belonging to the failed Irwin Financial Corp. is "a game changer" for the company.

Yadkin Valley Financial Corp. shares fell 3.9%, posting a second straight day of declines after the Elkin, N.C., company suspended its cash dividend. Mark Muth, an analyst at Howe Barnes Hoefer & Arnett Inc., wrote in a note to clients Tuesday that he believe the company may soon sell common stock in an attempt to exit the Troubled Asset Relief Program.

Bank of America Corp. shares rose 2.1% a day after the company said it would pay $425 million to resolve a long-standing issue over a long-sharing agreement with the government.

Wells Fargo & Co. shares rose 3.9%. The San Francisco company said that Richard Kovacevich would retire as chairman Jan. 1 and that Chief Executive John Stumpf would take the role. Kovacevich had already transferred day-to-day operations to Stumpf but agreed to remain chairman to help oversee the integration of Wachovia Corp., which Wells bought Dec. 31.

Decliners included South Financial Group Inc., down 4.8%; First Busey Corp., 3.4%; and U.S. Bancorp, 0.4%.

Gainers included JPMorgan Chase & Co., up 4.3%; Susquehanna Bancshares Inc., 3.8%; and NewBridge Bancorp, 3%.

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