Bank stocks continue their climb

NEW YORK (CNNMoney.com) -- Bank stocks finished mostly higher Monday as persistent fears about the underlying health of the beleaguered sector continued to subside, helping extend last week's big rally.

Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500), two of the hardest hit banks during the past few months, climbed 7% and 31% respectively during the session. Citigroup stock, which closed at $2.33 a share, made headlines earlier this month when it drifted below just $1.

Several regional banks, including U.S. Bancorp (USB, Fortune 500) and Fifth Third (FITB, Fortune 500), also posted gains Monday, finishing nearly 2% and 8% higher.

Bank stocks have been on a winning streak lately, helped by signs that not everything is broken with the nation's financial system.

Two of the most widely-watched sector indicators - the KBW Bank Index and S&P Banking Index - gained 37% and 46% last week after top executives at some of the biggest firms, including JPMorgan Chase (JPM, Fortune 500) and Citigroup, indicated that they were profitable during the first two months of the year.

But these two indexes finished slightly lower Monday after broader market nervousness and a selloff in the tech sector caused shares of most banks to pull back from their highs. Shares of two top banks, Wells Fargo (WFC, Fortune 500) and JPMorgan Chase fell 2% and 3% respectively.

The big gains in bank stocks earlier Monday were fueled in part by a report that the British banking giant Barclays (BCS) was looking to sell its iShares business, a part of its asset-management division. The Wall Street Journal reported that the sale could fetch $5.6 billion.

The sale of its highly-prized exchange-traded fund division could keep Barclays from seeking out aid from UK regulators, something it has sought to avoid. Other leading British banks, including Royal Bank of Scotland, have had to rely extensively on government assistance to keep functioning.

Other large U.S. banks, notably Citigroup, have moved recently to sell key assets. Earlier this year, Citigroup agreed to merge its Smith Barney brokerage business with that of Morgan Stanley (MS, Fortune 500), a sale that will generate $2.7 billion for the embattled bank.

But Charles Wendel, who runs Financial Institutions Consulting Inc., a Connecticut-based consultancy that advises banks, said he did not expect a rash of asset sales by banks.

Rival banks that are in a much healthier position are focused on shoring up their own operations while private investors are being extra cautious after making a series of high-profile bad bets earlier this year.

"There are lot more sellers than buyers right now," said Wendel.

Also providing a boost was Monday's proposal by the Financial Accounting Standards Board, the private-sector group that sets U.S. accounting rules along with the SEC, to give companies that rely on mark-to-market accounting greater leeway in valuing assets.

The proposed change could help stem the tide of painful writedowns that banks have suffered over the last year and possibly fuel investor interest in the group.

"There is a general relief that these banks are not in an endless tailspin," said Marshall Front, chairman of Chicago-based money management firm Front Barnett Associates. "People are now looking for opportunities instead of running from risk."