Bank stocks rose most of Thursday as investors went shopping for bargain, but the stocks fell sharply in late afternoon trading in response to Federal Reserve Board Chairman Ben Bernanke's plea for the government to stem foreclosures.
The KBW Bank Index had risen more than 5% by midafternoon but fell in the last hour to close down 1.31%.
Joseph C. Morrissey, managing director of bank and thrift stocks at Boenning & Scattergood Inc. of West Conshohocken, Pa., said bank stocks likely got a lift most of Thursday from news of a rise mortgage refinancings, rate cuts by Europe's central banks, and investors snapping up bargains.
"I think we're in a somewhat oversold condition, coupled with historically cheap valuations," Mr. Morrissey said. "As we close out the year, I think there is across-the-board interest in acquiring positions in some of these names at discount prices."
Bank stocks fell sharply in late trading as investors grew concerned that Friday's unemployment report would bring more dismal news. In addition, Mr. Bernanke said Thursday afternoon in his prepared remarks at the Fed's Conference on Housing and Mortgage Markets that more needs to be done to prevent foreclosures.
"Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy," Mr. Bernanke said.
Loan modification programs need to put borrowers in mortgages they can afford over the long term, he said, and the programs might need to include principal writedowns.
The broader markets also swung negative in the last hour. The Dow Jones industrial average fell 2.51% for the day, and the Standard & Poor's 500 fell 2.93%.
Wells Fargo & Co. fell 2%. According to Bloomberg News, the Washington State Department of Financial Institutions said in an administrative order that the San Francisco company misrepresented the risks of buying $3.9 billion of auction-rate securities to its customers.
Charles W. Daggs, the chief executive officer of Wells Fargo Investments, said in a press release, "We did not actively market or promote auction-rate securities, and we did not provide special incentives for brokers to sell them."
State Street Corp. rose 2%. The Boston company said late Wednesday that it plans to cut up to 1,800 jobs, or about 6% of its work force, by March.
"In order to maintain customer service, the reductions will largely be achieved by consolidating middle and senior management ranks," State Street said.
Bank of America Corp. fell 4.7%, Citigroup Inc. fell 5.4%, Bank of New York Mellon Corp. dropped 3.6%, U.S. Bancorp dropped 3.6%, and Colonial BancGroup Inc. fell 14.3%.
JPMorgan Chase & Co. rose 2.7%, Zions Bancorp. gained 4.4%, SunTrust Banks Inc. rose 4.2%, and East West Bancorp Inc. rose 2.3%.
