Bullish mood helps to drive Wall St up

THE S&P 500 rose yesterday to its highest level since the collapse of Lehman Brothers, led by bank stocks that have leapfrogged other sectors in December.

The banks – epicentre of the credit crisis two years ago – led indexes higher as a December run helped keep the market's year-end rally afloat. The KBW Bank Index rose 1.9 per cent, led by regional institutions.

“The financial sector is unique in that it has spent two consecutive years in the performance basement,"”said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisers in Rochester, New York.

“Today financials look a little bit more investable than they did 18 or 24 months ago because the price is right and some risk has has been extracted.”

The S&P 500 has risen for five sessions in a row but gains have been modest and on light volume. The benchmark’s relative strength index points to a pullback in the near term, but for now investors don't seem worried. The CBOE Volatility Index, known as Wall Street’s fear gauge, fell 6.3 per cent to 15.45, its lowest closing level since July 2007.

Bank of America rose 3.1 per cent to $13.38 and JPMorgan Chase climbed 2.8 per cent to $42.16, giving the greatest boost to the Dow industrials.

Regional banks outpaced their larger counterparts after recent merger activity in the sector boosted hopes for more M&A to come. Hancock Holding agreed to buy Whitney Holding on the heels of last week’s takeover of Marshall & Ilsley by Bank of Montreal.

The KBW regional bank index was up 3.7 per cent and is now up 19.4 per cent for the month. Whitney Holding surged 28.8 per cent to $14. United Bankshares jumped 4.6 per cent to $29.80 after KBW raised its price target to $28 from $23.

The Dow Jones industrial average added 26.33 points, or 0.23 per cent, to 11,559.49. The Standard & Poor’s 500 Index gained 4.24 points, or 0.34 per cent, to 1,258.84. The Nasdaq Composite Index edged up 3.87 points, or 0.15 per cent, at 2,671.48.

The S&P 500 climbed above 1,255.08 where the index closed just days after Lehman filed for bankruptcy in September 2008. For the year, the index is up 12.9 per cent, including a 6.6 per cent December run.

Energy shares rose as crude oil futures settled 0.7 per cent higher at $90.48 a barrel. Chevron added 0.7 per cent to $89.89. Walgreen rose after the drugstore chain posted higher profit.