Bank stocks fell Thursday as investors continued to fret over the industry's health and whether the federal government can repair the damage.

The KBW Bank Index fell as much as 9.1% during the session but recovered somewhat in the late afternoon to close down 2.75% after news reports that the Obama administration was devising a program to subsidize mortgage payments for struggling borrowers.

Jacqueline Reeves, the managing director of Bell Rock Capital LLC, said the overall decline in bank stocks stemmed from the lack of clarity on the plan Treasury Secretary Timothy Geithner outlined Tuesday for the second half of the $700 billion Troubled Asset Relief Program.

Additionally, investors are concerned about whether the economic stimulus plan would work fast enough — or at all, if Tarp does not, she said.

"There are some things in the stimulus plan that should have a positive impact on stimulating the economy, but without a functioning financial system on a global scale, it will still far short," Ms. Reeves said.

JPMorgan Chase & Co. fell for most of the day but rose in the late afternoon rally to close up 0.4%. The New York company announced Thursday that it had opened four centers in Southern California to help borrowers struggling with mortgage payments. It expects to have nine such centers open in California by the end of the month and 24 around the country by the end of next month.

Colonial BancGroup Inc. fell 8.8%. The $26 billion-asset Montgomery, Ala., company was hit with a second shareholder lawsuit claiming it misled investors about strings attached to its receipt of Treasury funds.

Bank of America Corp. fell 3.3%, Citigroup Inc. fell 2.2%, Wells Fargo & Co. fell 4%, U.S. Bancorp fell 8.9%, Bank of New York Mellon Corp. fell 2.6%, and State Street Corp. fell 3.1%.

The broader markets fell for most of the day but rose in the afternoon on news of subsidized mortgage relief. The Dow Jones industrial average fell 0.09%, while the Standard & Poor's 500 rose 0.17%.

The Commerce Department said Thursday that retail sales rose 1% last month from December; economists on average had expected a drop of 0.8%.

The Labor Department said initial unemployment claims for the week that ended Feb. 7 dropped 1.2% from the previous week, to 623,000. Analysts on average had expected 610,000. The number of people receiving unemployment benefits for the week rose 0.6%, to 4.81 million, the highest level in more than 40 years. Analysts had expected a total of 4.8 million.

The National Association of Realtors said Thursday that the fourth-quarter U.S. median home price fell 12.4% from a year earlier, to $180,000.

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