Shares of major banks gained with the broader market in Monday trading, buoyed by new proposals for a broad solution to Europe's debt crisis and signs that the U.S. economy may be gaining strength.
The Dow Jones industrial average soared 300 points at midday. Driving those gains were results that showed strong spending at retailers during the Thanksgiving weekend, which joined indicators like a shrinking number of applications for unemployment insurance to suggest that the U.S. is not sinking into another recession.
Meanwhile, European leaders were talking about ways to save the euro that included previously rejected ideas like creating a fiscal union of the 17 euro countries and having the strongest issue bonds to help prop up the most indebted.
The news from both sides of the Atlantic helped boost shares of banks like Citigroup Inc., which added $1.35, or 5.7 percent, to $24.97, despite a downgrade from Morgan Stanley analysts.
Investors see Citi as one of the U.S. banks with the most exposure to Europe. The New York-based bank's gains held even after a judge rejected a $285 million agreement with the Securities and Exchange Commission that would have imposed penalties but allowed the bank to deny allegations that it misled investors on a complex mortgage investment in 2007.
Also seemingly playing against Citi was a cut to "Equal Weight," or neutral, from "Overweight," the equivalent of a Buy rating, from Morgan Stanley, which also slashed its price target to $30 from $45.
Analyst Betsey Graseck based that cut and a series of other changes in the sector on the belief that Europe is sinking into a recession and growth in the U.S. will slow down in 2013 compared to 2012. If those two things happen, the analyst wrote, banks will see slower spending growth, less capital markets activity, higher credit losses and an increased possibility of action by the Federal Reserve that could pressure profit margins.
Graseck also cut price targets on Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Capital One Financial Corp.
Bank of America's target was cut to $7 from $10, and the stock was kept at an "Equal Weight" rating. Shares gained 14 cents, or 2.8 percent, to $5.32.
JPMorgan Chase & Co. was kept at "Overweight," but the price target was cut to $40 from $49. The stock shot up $1.12, or 3.9 percent, to $29.60.
Goldman Sachs, kept at "Equal Weight," had its price target slashed to $113 from $130. Shares added $3.07, or 3.1 percent, to $91.82.
And Capital One was kept at "Overweight" but saw its price target trimmed to $55 from $60. The stock rose $1.56, or 3.9 percent, to $41.58.
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