Thursday, spurred by reports indicating strong economic growth and slower inflation.
The Standard and Poor's index of 31 banks shot up 6.4%, its third-biggest one-day gain; its two-day gain of 11.3% is the biggest since 1990.
The recent surge in bank stocks may "lead the overall market out of the doldrums," said Charles W. Johnson, head equity trader at Blaylock & Partners in New York.
Behind the soaring prices were government reports that gross domestic product grew at a robust annual rate of 4.8%; labor costs increased only 0.8%, below the 0.9% consensus estimate; and the gross domestic product price deflator -- an inflation gauge -- dropped to a 0.9% annual rate, far below the 1.4% estimate by economists.
"On the margin, this news makes it less likely" that the Federal Reserve will raise rates on Nov. 16, said Kenneth Mayland, chief economist at KeyCorp in Cleveland.
Some observers attributed part of Thursday's spurt in bank stocks to a reversal of discounts that investors had factored into prices when they expected a rise in rates.
Almost every financial stock rose Thursday. Among the big banks, Chase Manhattan Corp. rose $5.8125, or 7%, to $88.5625; Bank One Corp. $2.3125, or 6.6%, to $37.625; and FleetBoston Financial Corp. $3.8125, or 9.6%, to $43.6875.
Brokerages and consumer financial companies also racked up big gains: Providian rose $13.125, or 13.3%, to $112; Capital One Financial Corp. $4.25, or 9.2%, to $50.50; American Express Co. $10.375, or 6.7%, to $161; Donaldson, Lufkin & Jenrette Inc. $6.375, or 13.3%, to $54.50; and Lehman Brothers $7.5625, or 11%, to $75.75.
Some economists contend that a market has hit bottom once there are no bulls. "Bank stocks, the stock market, the bond market -- all have taken a beating," said Mr. Mayland.
The scarcity of bulls "set the stage for all stocks to reverse their downward slide of the last 18 months," said Phil Rettew, vice president and senior market analyst at Merrill Lynch & Co. Mr. Rettew said "most stocks have been coming down for a year and half."
What goes for general stocks goes for financial equities, said Mr. Johnson of Blaylock. "Folks are deciding it's time to get back into the market.
"Even if the Fed raises rates another 25 basis points, the feeling is that the hikes are pretty much over," he said. "We still have some good strength in the economy but there doesn't seem to be as much inflation out there as people thought."
Some analysts said the market may have overreacted to Thursday's report.
For one, the gross domestic product deflator "is a repackaging of old" consumer price and producer price indexes, said Edward F. McKelvey, a senior economist at Goldman Sachs Group Inc. in New York. But the numbers are not enough to take the Fed "off a tightening track," he said.
"The market puts too much emphasis on interest-rate levels than the actual performance of these companies," Mr. Mayland said. "But so be it."
Miles P.H. Seifert, chief investment officer at Gray, Seifert & Co. of New York, said a few other factors will continue to help bank stocks. One is an expected passage of the financial modernization bill.
"Banks sell at a discount because it is a regulated industry," Mr. Seifert said. Now banks will face much less regulation, he said, adding that investors are coming to their senses.
"People are paying more attention to earnings," Mr. Seifert said.