By Wallace Witkowski and Greg Morcroft, MarketWatch
SAN FRANCISCO (MarketWatch) — U.S. financial stocks closed higher Tuesday to lead the broader market as investors focused on the announcement that Italy’s Prime Minister Silvio Berlusconi would step down.
Financials rose following reports that Berlusconi plans to resign after the country’s 2012 budget is approved. Read more on Berlusconi.
Earlier, the prime minister’s budget narrowly passed a key parliament vote but did so without majority support. The lack of a majority was expected to lead to a confidence vote for Berlusconi’s government or his resignation, as Europe’s third-largest economy struggles to avoid a debt crisis like the one wracking Greece.
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Regions Financial Corp. /zigman2/quotes/202396577/composite RF +3.62% led financial gainers on the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.95% , with shares closing up 5.3%, trailed by shares of Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC +1.92% , which finished up 4.4%.
Close behind were shares of NYSE Euronext , which rose 3.5% in recent activity. The exchange operator, in line to merge with Germany’s Deutsche Boerse /zigman2/quotes/203431168/composite DBOEY -2.08% , stands to gain from resolution of Europe’s problems. Shares of Principal Financial Group Inc. /zigman2/quotes/201030797/composite PFG +0.88% also finished 3.5% higher.
In the broader sector, the Financial Select Sector SPDR /zigman2/quotes/209660484/composite XLF +0.80% , which tracks financial stocks in the S&P 500, closed up 1.9%. The SPDR S&P Bank ETF /zigman2/quotes/201006419/composite KBE +1.46% finished up 2.4%.
“This is all based on a reaction to the news,” said Doug Roberts, chief investment strategist for Channel Capital Research. “Tight positions and negative sentiment for financials have developed over the past four to five months.”
Conversely, a game changer for the sector could be any indication from Federal Reserve officials that a third round of quantitative easing is in the works, Roberts said.
Fed Chairman Ben Bernanke will be speaking at a small-business conference in Washington on Wednesday and at a town-hall meeting in El Paso, Texas, on Thursday. Also, Fed Governor Daniel Tarullo will speak at a conference in New York on Wednesday, and Vice Chair Janet Yellen will speak at a banking conference in Chicago on Friday.
The four financial components in the Dow Jones Industrial Average all swung to close higher: J.P. Morgan Chase & Co. /zigman2/quotes/205971034/composite JPM +0.70% rose 2.3%, Bank of America Corp. /zigman2/quotes/200894270/composite BAC +0.53% rose 1.2%, Travelers Cos. /zigman2/quotes/206313935/composite TRV -0.18% rose 0.7%, and American Express Co. /zigman2/quotes/203805826/composite AXP +3.14% advanced 0.2%.
Financials ranked as the best-performing sector out of the 10 making up the S&P 500. Collectively, financial stocks were up about 1.9%, with the second best sector going to energy stocks, which closed up 1.4%.
Only three S&P 500 financial stocks finished lower Tuesday: Federated Investors Inc. , Janus Capital Group Inc. , and Discover Financial Services /zigman2/quotes/208747867/composite DFS +3.71% .
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