The cloud hanging over bank stocks darkened a shade late Friday as earnings reports and economic news amplified the skepticism that has dogged the financial markets for months.

In another day defined by extraordinarily volatile trading, the KBW Bank Index moved up in early trading, swung into the red in midmorning, and held there until early afternoon, when it pushed back into the black before swinging into negative territory in late trading.

The index closed down 3.5%, more than erasing its 2.6% gain Thursday in another volatile trading session. For the week, the index gained 8.2%.

The broader markets followed a similar pattern. The Dow Jones industrial average lost 1.4% for the day but gained 4.8% for the week. The Standard & Poor's 500 fell 0.6% for the day but rose 4.6% for the week.

"There's no rhyme or reason for these wild, wild swings," Tim Curran, a bank-stock trader at Regions Financial Corp.'s Morgan Keegan & Co. Inc., said in an interview Friday. "It's not a fun environment when the buy-side people really have no idea where they want to be."

Housing starts fell 6.3% last month, to a seasonally adjusted rate of 817,000, the lowest in 17 years, according to federal data.

The housing weakness, along with widespread doubt about the collective outlook for banking companies, dragged several stocks into the red. Citigroup Inc. lost 5%. Downey Financial Corp. of Newport Beach, Calif., shed 4%. Sterling Financial Corp. of Spokane dropped 5%, and UCBH Holdings Inc. of San Francisco lost 9%.

There were some notable gainers. Morgan Stanley climbed 3%, and Hampton Roads Bankshares Inc. in Norfolk, Va., rose 7%.

Comerica Inc.'s shares gained 0.3%, even though the Dallas company reported an 85% drop in third-quarter earnings, citing credit troubles in Michigan and California. And First Horizon National Corp. in Memphis, which posted a third-quarter loss of $118.3 million, gained 1.9%.

"We've had some value players stepping in with one foot at points, and that's been encouraging," Mr. Curran said. "Still, most people are hesitant to step in with both feet. They don't want to risk getting caught in front of the next freight train that rips through and catches everyone off guard."

Most analysts expect more erratic trading in the weeks ahead as the markets absorb earnings reports and try to sort out the effects of interest rate cuts and the federal government's plan to invest in banks.

But many analysts are struggling to understand why stocks are swinging widely in intraday trading.

"I expect more volatility in general, but these severe swings, over and over, I'm really befuddled by the whole thing," Mark Fitzgibbon, director of research at Sandler O'Neill & Partners LP, said in an interview Friday. "You have hedge funds deleveraging, you have bargain hunters, but I still don't think those factors alone are enough to drive the swings we've been seeing."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.