Bank shares rose as the Dow Jones industrial average neared the 9,900 level and came within striking distance of 10,000.
The Dow finished the day at a record 9,897.44, up 124.60 points, as part of a broad rally that included other major market barometers.
Stocks of the largest banking companies joined in the general advance. BankAmerica Corp. rose 62.5 cents, to $72.125; Citigroup $1.1875, to $65.1875; and J.P. Morgan & Co. 31.25 cents, to $119.1875.
Bank shares overall rose on investors' confidence that "inflation is virtually nonexistent" despite "the nation's strong economic growth," said Peter Green, chief technical strategist at Gruntal & Co.
The market was helped by an overnight market rally in Japan. The Asian nation, whose economy is the world's second-largest, may finally be "getting its house in order" after years of financial difficulties, Mr. Green said.
The Standard & Poor's bank index rose 0.54%, the Nasdaq bank index 0.48%, and the S&P 500 0.84%
Shares of Compass Bancshares rose 68.75 cents, to $38.375, as the Birmingham, Ala., company completed a round of visits with Wall Street analysts and investors.
Compass executives highlighted more aggressive financial targets and said they are focused on improving returns, according to analysts who attended the presentations.
"We like their story," said Michael Granger of Fox-Pitt, Kelton Inc. in New York. "We believe they can increase earnings at a double-digit rate over the longer term."
The company, the fourth-largest banking institution headquartered in Alabama, is successfully expanding into promising markets like Texas and Arizona, Mr. Granger said. "They have generally pursued a high-growth market strategy."
Compass "is a relatively unknown story," said Robert Patten of Lehman Brothers. "Fundamentals continue to improve, but we believe the shares reflect an oversold position due to a misunderstood acquisition strategy and a perceived appetite for future dilution."
Shares of Compass are "poised for a turnaround," Mr. Patten asserted. "Management is focused on execution and restoring valuation to the shares."
The company could post a 300-basis-point improvement in its efficiency ratio, to 56%, by the fourth quarter, as savings kick in from last year's consolidation of 12 banks, Mr. Patten said.
Compass' management "has built a high-value franchise and should be successful in improving the operating performance of the company," he added.
But even if the company's performance falters and it chooses to merge, it "would have a host of potential suitors," Mr. Patten said.
In that event, Amsouth Bancorp, Regions Financial Corp., and SouthTrust Corp., all of Birmingham, would be among likely bidders, he said.