Bank stocks roared back to life Thursday after newly released economic news showed inflation under control and unemployment falling.
"This is the best of all possible worlds, low inflation but steady job growth," said Carole Berger, senior analyst at Salomon Brothers. "Some of the fear that had been hanging over these stocks is dissolving."
The Standard and Poor's index of major banks surged in early trading on the economic news, rising nearly 1% by noon, closing up 1.34%.
The S&P 500 rose 0.36% and the Dow Jones industrial average jumped 0.31%.
The Producer Price Index, a closely watched inflation indicator, fell 0.2% from the previous month. Excluding the core food and energy items, the index rose 0.1%. Economists had expected a 0.2% rise, excluding the core items.
Weekly jobless claims fell 10,000 to 353,000, 10 times the drop a consensus estimate of economists had predicted.
"This is the Goldilocks scenario for banks - it is not too hot and not too cold," Ms. Berger said.
Last Friday, a spectacular jobs growth report ignited fears of inflation and dashed hopes for another round of Federal Reserve rate cuts.
On that day alone, the S&P banks fell almost 4%. Since bank stocks reached a high on March 5, the shares had fallen 6% through the close of trading Wednesday, Ms. Berger said.
But the price index report suggests inflation - which traditionally rises amid job growth - is not yet a problem. As a result, bond prices should stabilize, helping bank stocks. With rising employment, loan delinquencies will likely drop, another boost to banks.
The biggest gainers Thursday were the names that had been the main losers the past week - the large capitalization stocks.
Citicorp rose $1.96 to $78.375, Chemical Banking Corp. rose $1.625 to $68.375, Banc One Corp. rose $1 to $35.125 and First Chicago NBD Corp. rose $1.25 to $39.50.
In other news, American Express Co. shares rose $2.375 to $47.375 on reports billionaire investor Warren Buffett planned to increased his stake in the company from 9.8% to 17%.
The company said this news had previously been disclosed in the third quarter's 10-Q filing. In that filing, and in a proxy statement filed late Wednesday, the company said Mr. Buffett agreed to vote with the board as long as Harvey Golub remained chairman.
Mr. Buffett has been very outspoken about his support for American Express, so the increased support is unsurprising, said Samuel Liss, a credit card analyst with CS First Boston Corp. The company has a strong global franchise and an impressive brand name, he said.
American Express said Mr. Buffett had so far increased his stake to 10.2%, or 49.5 million shares. At current prices, a 17% stake would be worth $3.9 billion.
First Commercial Corp. shares fell on news a jury had awarded a former client that had sued the bank $22.5 million. First Commercial shares fell 62.5 cents to $31.75 despite a statement from the bank the award would be immaterial. The bank is the largest with headquarters in Arkansas.