Banking stocks rose as lawmakers were reportedly nearing a deal on legislation to overhaul the financial industry, and an analyst gave a positive assessment of banks' earnings capacity.

The KBW Bank Index rose 0.66%, to 47.55.

Key senators on Tuesday were close to striking a deal on an overhaul bill that among other things proposes creating a new consumer protection division, The Wall Street Journal reported.

Investor concern over the severity of pending banking legislation has weighed on the sector for weeks.

Richard Bove of Rochdale Securities said in a research note that the banking industry is "dramatically overcapitalized" and has "more earnings capacity built in to it than any time in decades" as loan losses stabilize.

Most large and midsize banks closed higher, though Bank of America Corp. fell 1.5% after announcing it is combining oversight of its global card services and deposits under Susan Faulkner, displacing card services head Ric Struthers.

JPMorgan Chase & Co. fell 0.5%.

Wells Fargo & Co. rose 1.9% and Citigroup Inc. rose 1 cent, to $3.40.

KeyCorp rose 1%; SunTrust Banks Inc., 3.34%; U.S. Bancorp, 0.94%; M&T Bank Corp., 0.85%; and Fifth Third Bancorp, 3.43%.

The Dow Jones industrial average rose 0.02% and the Standard & Poor's 500 index rose 0.23%.

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