Regional banking stocks fell sharply Wednesday after PNC Financial Services Group Inc. struck a deal to repay its federal aid, putting pressure on its peers to follow suit.

The KBW Bank Index fell 2.35%, to 46.2.

Investors reacted negatively to PNC's announcement late Tuesday that it would raise $3 billion to help repay its $7.6 billion in money it took from the government. Its shares fell 1.72%.

"We are a bit surprised at the amount of capital regulators are requiring PNC to raise," Matt O'Connor, an analyst with Deutsche Bank Securities Inc., wrote in a research note. He said "this is likely a negative" for some regional lenders because "they may need to raise more capital than many had expected" to return their federal aid.

KeyCorp, Regions Financial Corp. and M&T Bank Corp. — three lenders still holding bailout money — fared poorly on the news. KeyCorp fell 1.46%, Regions 2.89% and M&T 3.77%.

The Dow Jones industrial average fell 0.26% and the Standard & Poor's 500 index fell 0.55%.

The largest banks were also soft.

Bank of America Corp. fell 0.45%, JPMorgan Chase & Co. fell 0.64%, Wells Fargo & Co. fell 2.08% and Citigroup Inc. fell 4 cents, to $3.37.

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