Bank stocks and the broader market rallied Tuesday as the Federal Reserve Board's policymaking arm voted to hold interest rates steady, as it had been widely anticipated to do.
Even before the Federal Open Market Committee's afternoon announcement, bank stocks had rallied, aided by a continued slide in oil prices.
The KBW Bank Index ended the session up 5.5%. Both the Standard & Poor's 500 and the Dow Jones industrial average rose 2.9%.
Citigroup Inc. rose 5.8%, and JPMorgan Chase & Co. gained 4.4%. Both are components of the Dow average.
Bankers love interest rate stability, "particularly when they have a steep rate curve, which gives them time to earn them back into better financial shape," Gary B. Townsend, the chief executive of Hill-Townsend Capital LLC, said in an interview Tuesday.
The Fed voted to keep the federal funds rate at 2%, and it left the discount window rate at 2.25%
Scott A. Anderson, a senior economist at Wells Fargo & Co., wrote in a research note issued Tuesday that the Fed "remains hunkered down in its foxhole for the time being," and that future interest rate changes are "highly uncertain."
Bank stocks and the broader market were also buoyed by oil prices, which dipped as low as $118 a barrel Tuesday.
Wachovia's stock rose 11.4% after losing nearly 10% on Monday, a day after its new CEO, Robert Steel, met with analysts in New York. Mr. Steel succeeded G. Kennedy Thompson, who was ousted in June.
The new CEO assured analysts that there would be no more top-level executive changes in the near term, according to Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co., who attended the meeting.
Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, also attended the meeting. "The message we heard — which was delivered with candor and frankness — was that there are very serious issues they are addressing at this time, and Steel doesn't have all the answers," Mr. Cassidy said in an interview Tuesday. "But he's working on them and will come back with a plan sometime within the next three to four months."
Other gainers included Zions Bancorp. of Salt Lake City, which rose 10.8%. Greg Ketron, a Citi analyst, wrote in a note that the percentage of loans outside California and Nevada that were 30 to 89 days past due dropped 54 basis points from a quarter earlier, to 0.77%, according to the June 30 call reports for all of Zions' subsidiaries.
"Though still early to call for a turn on credit, we believe the sizable drop in early stage delinquencies mitigates credit deterioration in the third quarter," Mr. Ketron wrote in the note.
National City Corp. in Cleveland gained 4.8%. Lana Chan, an analyst at Bank of Montreal's BMO Capital Markets Corp., said in an interview Tuesday that the rise was likely in tandem with the banking sector's rally.
Other gainers included Frontier Financial Corp. in Everett, Wash., which rose 12.4%; Capital One Financial Corp., which rose 11.5%; and East West Bancorp in Los Angeles, which rose 11.37%.
Decliners include Oneida Financial Corp. in New York, which fell 14.3%, Franklin Bank Corp. in Houston, which fell 12%; and Silver State Bancorp in Henderson, Nev., which fell 11.4%.