Benign economic data and strong earnings boosted bank stocks Friday.
American Banker's index of 50 largest banks rose 1.96%, and its index of 225 banks rose 2.31%. 
Lifting the group was news that U.S. producer prices, excluding food and energy, declined more than expected in June for the first time in five months, according to government data.
The core rate of the producer price index fell 0.1% last month, after rising 0.2% in May. The overall producer prices for finished goods rose an expected 0.6%, after showing no change in May.
"Inflation does not seem to be a problem," said Scott J. Brown, chief economist at Raymond James & Associates, St. Petersburg, Fla., "but energy costs continue to go up, and that is nothing to sneeze at."
Bank stocks smoothly handled the Commerce Department report that U.S. retail sales rose more than expected in June. Total sales rose 0.5% in June, after a revised increase of 0.3% in May. Excluding automobile, sales rose 0.2% in June, after a revised increase of 0.5% in May.
"This suggests that the economy is slowing but not as quickly as people anticipated," Mr. Brown said. Quarterly retail sales growth is fairly mild, but on a year-to-year basis it is "pretty strong," he said.
A good showing in earnings on Thursday and Friday also helped the rally in bank stocks, analysts said. The day's biggest gainers included J.P. Morgan & Co., which rose $4.5625, or 3.68% to $128.6875; PNC Financial Services Group, up $2, or 4.08% to $51; and Fifth Third Bancorp, up $2.3125, or 3.44% to $69.625. All three companies reported solid earnings on Thursday and Friday, with J.P. Morgan beating estimates by a wide margin.
"The economic data suggest that we will not have to worry about more interest rates hikes, and the earnings suggest that credit quality is not the nightmare that investors envisioned," said Andrew Collins, an analyst at ING Barings.
This rally might have some staying power, Mr. Collins said. "There has been a relief in the uncertainty. Banks are showing that their credit quality continues to be good and that they can earn their way though a difficult interest rate environment."
The first round of earnings indicates that concerns about credit quality are "overblown," he said.
"Nonperforming assets were down at SunTrust Banks Inc. and up slightly at PNC, which is nothing to be concerned with," Mr. Collins said. "They also were manageable at J.P. Morgan. So far, good credit performances are coming out in the early reporters."
Investors are also enthusiastic that the pre-announcements are over, said Gerard Cassidy, an analyst at Tucker Anthony Cleary Gull. "The story is many banks don't have asset-quality problems, are reporting better earnings, and are trading at eight to nine times projected earnings, suggesting that they are cheap stocks."
There has been a fight going on between the fear of rising nonperforming assets and the hope of declining short-term interest rates, Mr. Cassidy said. "Right now, the round is going to [the hope that] short-term interest rates will fall in six to 12 months."
