Markets: News  

Financial stocks higher on Twist talk, housing

SAN FRANCISCO (MarketWatch) -- Financial stocks surged Wednesday on indications the Federal Reserve may extend its Operation Twist this summer and positive signs in the housing sector.

Bank of America Corp. (BAC) shares closed up 7.6% and led the Dow Jones Industrial Average (DJIA) higher. Other banks with gains of more than 5% included Regions Financial Corp. (RF) and Citigroup Inc. (C)

On Wednesday, Dennis Lockhart, the president of the Atlanta Federal Reserve Bank said extending the Fed's Operation Twist remains an option on the table this summer given gathering risks to the U.S. economy from Europe. Read more on Lockhart.

Worries of an economic downturn, however, didn't seem to apply to home builders. The sector, which moves in tandem with banks, surged Wednesday after Hovnanian Enterprises Inc. (HOV) swung to a fiscal second quarter profit, citing improving conditions in the industry. Hovnanian shares jumped 18% and the iShares Dow Jones U.S. Home Construction Index (ITB) closed up 3.8%.

Out of Europe, the European Central Bank kept interest rates at 1% and pressured leaders to address the region's growing debt crisis. Read more on ECB.

Meanwhile, European Commission President Jose Manuel Barroso said the region is moving closer to a "banking union" given recent proposals advanced to deal with failed banks. Read more on Barroso comments.

Shares of Morgan Stanley(MS) were the best performer in the sector with shares closing up 8.4% Wednesday on speculation the firm is shopping a stake in its commodity business.

Earlier in the day, CNBC's Kate Kelly said on the air that Morgan Stanley has had discussions with Blackstone Group (BX) on the matter.

That report, however, was later shot down by a person familiar with the situation, who said the firm had been approached by several private equity firms but had no interest selling a stake in the unit, according to DowJones Newswires. Read more on Morgan Stanley.

A Morgan Stanley spokesperson declined to comment on either report.

Elsewhere in the financial sector, insurers performed well as Genworth Financial Inc. (GNW) , Hartford Financial Services Group Inc. (HIG) , Lincoln National Corp. (LNC) , American International Group Inc. (AIG) , Aflac Inc. (AFL) , Prudential Financial Inc. (PRU) , Metlife Inc. (MET) and Progressive Corp. (PRU) all closing up 4% or more.

Collectively the financial stocks in the S&P 500 Index (SPX) , as tracked by the Financial Select Sector SPDR ETF (XLF) , added 2.9%. The KBW Bank Index (BKX) , which tracks the leading 24 U.S. banks, rose 3%.

As for the other financial stocks on the Dow, J.P. Morgan Chase & Co. (JPM) closed up 3.4%, American Express Co. (AXP) shares advanced 2.6%, and Travelers Cos. (TRV) rose 2.2%.

Bank regulators told Congress Wednesday they are reviewing their oversight of J.P. Morgan in light of its recent multi-billion dollar trading loss on derivatives contracts. Read more on J.P. Morgan.