Bank stocks rose Tuesday on several encouraging economic reports about home sales and consumer spending.

The KBW Bank Index rose 2.65%, after the National Association of Realtors said that pending U.S. home resales in June rose for the fifth straight month. Separately, the Commerce Department said consumer spending in June rose 0.4% from the previous month, higher than economists on average had expected.

Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co., wrote in a note Tuesday that he expects bank stock valuations to improve over the coming months as the economy improves and credit losses peak, likely by early to mid-2010.

"Even though a return to normalized earnings is most likely a 2011/2012 event, reduced drag on capital and earnings from elevated credit provisioning expense as the loan-loss reserve building cycle nears an end, combined with expanding net interest margins and well-controlled core expenses, should lead to improving bottom lines for several banks during 2010," Patten wrote.

Gainers were across the board.

JPMorgan Chase & Co. rose 1.5%, Bank of America Corp., 2.1%, Wells Fargo & Co., 2.9%, PNC Financial Services Group Inc., 1.6% and U.S. Bancorp, 4%.

Among the regionals, SunTrust Banks Inc. rose 4.5%, KeyCorp, 1.1%, Marshall & Ilsley Corp., 3.5%, Regions Financial Corp., 14 cents, to $4.58 and Huntington Bancshares Inc., 24 cents, to $4.41.

The Dow Jones industrial average rose 0.36% and the Standard & Poor's 500 rose 0.3%.

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