Bank shares boost market

Stock indexes rally as investors digest early reports on stress test results. Also 'could-have-been worse' employment reports help.

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By Alexandra Twin, CNNMoney.com senior writer

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How strong are the nation's 19 largest financial institutions?
  • All the major ones are fine
  • Most of them are fine, with a couple of exceptions
  • There are widespread problems in the system

NEW YORK(CNNMoney.com) -- Stocks surged Wednesday, with financial issues leading the way, after reports about the government's "stress tests" suggested that the major banks are better capitalized than some had thought.

Also helping: jobs reports that suggested the pace of the slowdown is easing.

The Dow Jones industrial average (INDU) gained 102 points, or 1.2%. The S&P 500 (SPX) index climbed 16 points, or 1.7%. The Nasdaq composite (COMP) rose 5 points, or 0.3%.

The major stock gauges had seesawed through the early afternoon, but staged a rally through the close after reports about the stress tests surfaced.

Bank shares led the charge even on reports that major companies such as Bank of America and Citigroup will need to raise billions more to meet the requirements of the regulators conducting so-called stress tests.

But investors were perhaps relieved that the companies didn't need to raise even more, said Tom Hepner, financial adviser at Ruggie Wealth Management.

Stocks drifted lower Tuesday as investors retreated after a roughly 8-week advance that boosted the S&P 500 by 34%. The rally followed a rout that left the index at a more than 12-year low.

Since then, investors have been moving back into the market on indications that the economy is starting to find its footing. Wednesday's two job market reports continued that trend.

"There are indications that the rate of decline is slowing and that has made investors a bit more optimistic," Hepner said. "They're taking an almost ho-hum response to bad news."

After the close, Cisco Systems (CSCO, Fortune 500) reported quarterly sales and earnings that fell from a year ago but still topped estimates.

Reports are due before the start of trading Thursday on first-quarter productivity, first quarter unit labor costs and weekly jobless claims. A report on March consumer credit is due in the afternoon.

Stress tests: Investors were sorting through published reports on the health of the nation's banking system ahead of the government's official release of the stress test results Thursday.

The government is testing to see that the 19 biggest banks have enough money on hand to withstand a potential bigger downturn in the economy. More than half the banks may have to raise additional capital, according to reports this week.

Bank of America (BAC, Fortune 500) may need to raise an additional $34 billion in order to meet the regulators' standard. Wells Fargo (WFC, Fortune 500) may need around $15 billion, according to published reports Thursday. Dow component Citigroup (C, Fortune 500) may need at least another $10 billion.

JPMorgan Chase (JPM, Fortune 500), American Express (AXP, Fortune 500) and Bank of New York Mellon (BK, Fortune 500) won't need any additional capital, according to the reports.

All the bank stocks mentioned rallied, along with regional banks. Fifth Third Bancorp (FITB, Fortune 500) added 15.5% and was one of the Nasdaq's big gainers.

The KBW Bank (BKX) sector index gained 11.5%.

Employment: A pair of reports released before the open showed that the pace of unemployment is starting to slow.

Employers in the private sector pared 491,000 jobs from their payrolls in April, after cutting 708,000 jobs in March, according to payroll services firm ADP. Economists surveyed by Briefing.com expected a decline of 645,000.

The number of job cuts announced in April decreased for the third month in a row, according to outplacement firm Challenger, Gray & Christmas Inc. U.S. employers announced 132,590 cuts in April, the lowest number since October, but still 47% more than in the same month a year ago.

The reports raised bets that Friday's bigger non-farm payrolls report from the government will show a slower pace of job losses too. Employers are expected to have cut 620,000 jobs from their payrolls after cutting 663,000 in March. The unemployment rate, generated by a separate survey, is expected to have risen to 8.9% from 8.5% in March.

Autos: General Motors (GM, Fortune 500) shares slumped ahead of its quarterly report, due out Thursday. The troubled U.S. automaker, facing a potential bankruptcy filing, is expected to post a steep quarterly loss.

Last week rival Chrysler filed for bankruptcy, after failing to win enough concessions from its lenders.

Ford Motor (F, Fortune 500) - the only Detroit automaker that has not taken government loans - said its restructuring is on track and that it has enough money to fund its plan. The company also said it will spend $550 million to convert a plant that produced trucks and SUVs into a complex for making fuel-efficient and battery-powered cars.

Corporate news: Walt Disney (DIS, Fortune 500) issued quarterly results late Tuesday. The Dow component reported weaker earnings that topped estimates on weaker revenue that missed estimates. Shares jumped nearly 12% Wednesday.

A rally in oil prices gave a boost to big oil services stocks Exxon Mobil (XOM, Fortune 500), Chevron (CVX, Fortune 500), ConocoPhilips (COP, Fortune 500) and Schlumberger (SLB).

Among decliners, Wal-Mart Stores (WMT, Fortune 500) and other retailers declined. Thursday brings April sales from the nation's retailers.

Market breadth was positive. On the New York Stock Exchange, winners topped losers seven to three on volume of 1.88 billion shares. On the Nasdaq, advancers topped decliners five to four on volume of 3.02 billion shares.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.13% from 3.15% Tuesday. Treasury prices and yields move in opposite directions.

Borrowing costs continued to improve. The 3-month Libor rate fell to an all-time low of 0.97% from 0.99% Tuesday, according to Bloomberg.com. The overnight Libor held steady at 0.24%. Libor is a bank lending rate.

Other markets: In global trading, most Asian markets ended higher. Japanese markets have been closed all week for a holiday. European markets ended higher.

In currency trading, the dollar gained versus the euro and fell against the yen.

U.S. light crude oil for June delivery rose $2.50 to settle at $56.34 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $7.20 to settle at $911.50 an ounce. To top of page

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