Bank stocks rose Thursday as investors continued to snatch up bargains on a day they were encouraged by how the government would conduct its stress tests on banks and the possibility of a third round of bailouts for banks.

The KBW Bank Index rose 4.83%, "but take a picture because it won't last long," said Joseph C. Morrissey, a managing director of bank and thrift stocks at Boenning & Scattergood Inc. in West Conshohocken, Pa. "We're still in an oversold condition, and it's a bear market rally. There's still a lot of heavy lifting to do."

Several regional bank stocks rose as investors felt relief that the institutions would probably not flunk the Treasury Department's new stress tests to determine how they would fare in a worsening economy, Mr. Morrissey said.

Fifth Third Bancorp rose 35 cents, to $2.29 a share; Huntington Bancshares Inc. 32 cents, to $1.98; and Regions Financial Corp. 18 cents, to $3.94. SunTrust Banks Inc. rose 18.8%, and PNC Financial Services Group Inc. 1.5%.

Also on Thursday, the Obama administration released its fiscal 2010 budget proposal, which included a $250 billion contingency fund for the banking sector. Moreover, the administration said there might have to be another bank bailout of as much as $750 billion this year.

JPMorgan Chase & Co. rose 6.1%. The New York company said Thursday that it expects to post a profit for the first quarter and will cut 12,000 jobs as it integrates the banking operations of Washington Mutual Inc., which it acquired last year. The company will also eliminate up to 2,000 investment banking jobs.

Bank of America Corp. rose 3.1%. Dow Jones reported Thursday that the Charlotte company is looking to sell First Republic Bank, a private bank Merrill Lynch & Co. Inc. bought in September 2007, a year before it agreed to sell itself to B of A.

Scott Silvestri, a spokesman for Bank of America, said it does not comment on merger speculation.

Citigroup Inc. rose in the morning but later fell to close down 6 cents, at $2.46 a share. The Wall Street Journal reported Thursday that a deal to give the government a 40% stake in Citi could be announced that day.

Citi declined to comment but reissued a statement that said: "Citi's capital base is very strong, and our Tier 1 capital ratio as measured at the end of the fourth quarter was 11.9%, among the highest in the industry. We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses, and streamlining our business for future profitable growth."

Among the other large-cap bank companies, Wells Fargo & Co. rose 7.1% and U.S. Bancorp 16.9%.

The broader markets rose in morning trading but closed in negative territory. The Dow Jones industrial average fell 1.22%, and the Standard & Poor's 500 index was off 1.58%.

The Labor Department said that initial unemployment claims in the week that ended Feb. 21 rose 5.7%, to 667,000, from the preceding week. The number of Americans continuing to get unemployment benefits topped 5.1 million in the week ended Feb. 14.

The Commerce Department said orders for durable goods in January fell 5.2% from the previous month. The department also said that January new-home sales fell 10.2%, to 309,000. Economists had estimated 330,000.

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