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US banks shares rally ahead of stress test results

US banks shares rally ahead of stress test results

Financial stocks soared Monday, pulling the broader market higher, as investors' concerns about the government's stress tests of banks eased.
The KBW Bank index, which tracks 24 of the largest U.S. banks, jumped 6.7 percent in afternoon trading, after falling 7 percent last week on worries over the tests.
"People are speculating that the stress tests aren't going to be as stressful as everyone feared," said Alan Villalon, senior research analyst at the First American Funds in Minneapolis.
Anton Schutz, portfolio manager at Burnham Financial Industries Fund and Burnham Financial Services Fund, said some short covering is likely moving financial stocks higher following the declines in the sector last week. Short covering happens when investors have to buy stock after having earlier sold borrowed shares in a bet that the shares would fall.
Despite Monday's gains, analysts believe financial stocks will remain extremely volatile this week ahead of the results, due Thursday.
"There's lots of speculation out there and I think the market is really looking for the facts," Schutz said.
Investors have been extremely nervous about what the results of the tests might reveal about the health of the 19 largest U.S. banks. The tests are designed to determine which banks might need more cash if the recession worsens, and many are expecting the results to show several banks need more capital.
Wells Fargo & Co. shares climbed more than 11 percent in afternoon trading despite a report that the San Francisco-based bank may be forced to raise capital as a result of the stress tests. Its shares added $2.26 to $21.87.
Wells Fargo is one of several banks that will need to raise money in order to meet the government's new capital standards that require banks to hold larger buffers against possible future losses, according to two people familiar with the matter who spoke on condition of anonymity because of the sensitivity of the process.
Wells Fargo spokeswoman Julia Tunis Bernard declined to comment.
Also rising were Bank of America Corp., which jumped 60 cents, or 6.9 percent, to $9.30, and Citigroup Inc., which rose 14 cents, or 4.7 percent, to $3.11.
The Financial Times reported Sunday that both banks are working on plans to raise more than $10 billion each as they negotiate with regulators over the findings of the stress tests.
Bank of America spokesman Scott Silvestri called the FT report "completely inaccurate," and said it is not working on plans to raise $10 billion in common equity.
Other big advancers included JPMorgan Chase & Co., which rose $1.45, or 4.5 percent, to $33.94, and PNC Financial Services Group Inc., which added $2.13, or 5.6 percent, to $39.95.
U.S. Bancorp rose 95 cents, or 5.3 percent, to $18.91.
Among regional banks, Regions Financial Corp. surged 62 cents, or 14.1 percent, to $5.01; Zions Bancorp jumped $1.33, or 12.4 percent, to $12.04; and Fifth Third Bancorp soared 63 cents, or 16.4 percent, to $4.48.
Keith Springer, president of Sacramento, California-based Capital Financial Advisory Services, said the gains in the financial sector Monday were a classic example of the old market adage "Buy on the rumor, sell on the news."
"The anticipation is the news is going to be better than expected," Springer said. "People feel the economy is improving."
Wall Street has enjoyed a stunning two-month advance, with the Dow Jones industrials up 25.4 percent and the Standard & Poor's 500 index up 29.7 percent since March 9.
Much of the rally has been fueled by gains in the financial sector, which had been ravaged by selling over the past year of economic crisis; some bank stocks have doubled or tripled in value in a matter of weeks. The rise was triggered by word from some of the nation's biggest banks that business conditions were improving, and has since been fortified by those banks' better-than-expected earnings reports.
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AP Business Writers Madlen Read and Daniel Wagner contributed to this report. Daniel Wagner contributed from Washington.


Updated : 2021-05-17 00:42 GMT+08:00