Financial stocks were the strongest performers in the Standard & Poor's 500 Index Thursday as comments from Federal Reserve Chairman Ben Bernanke, employment data and news from several big banks helped push shares higher.

The head of the central bank, in written remarks prepared for the House Financial Services Committee, said the Fed still believes low interest rates are needed to support the U.S. economy, but the Fed will be ready to tighten credit when needed to prevent inflation.

Low interest rates help banks because they make more interest on loans than they pay on borrowings.

The S&P 500's financial sector was recently up 1.9%, well above the next-biggest gainer, the consumer discretionary sector, which was up 1.5%. All segments of financials were rising, including big banks, regional banks, insurers and real estate investment trusts.

Oppenheimer & Co. analyst Terry McEvoy, who covers regional banks, said a gradual increase in rates would be beneficial to banks' margins, though if rates go up too quickly, it could be a challenge. Low rates also give commercial borrowers more time to wait for the economic picture to improve, he said.

And U.S. jobless claims data showed new claims for jobless benefits fell last week by more than expected and continuing claims fell to their lowest level since December 2008.

That's a positive report for bank stocks, McEvoy said, as it gives investors greater confidence in the economic recovery, and bank shares are extremely sensitive to the overall economy.

For regional banks especially, which often have high exposure to commercial real estate, the jobless numbers give a boost. As more people get back to work, McEvoy said, companies are able to fill empty office buildings and people spend more at the mall, which means stores are able to pay their rent.

Marshall & Ilsley Corp. (MI) rose 3.2% to $8.29, while BB&T Corp. (BBT) rose 2.2% to $32.81 and Huntington Bancshares Inc. (HBAN) rose 3.1% to $5.65.

McEvoy said it's a consistent trend Thursday, with both banks considered strong and banks that have had their share of credit woes and losses gaining.

Meanwhile, Citigroup Inc. (C) earlier Thursday joined several big-bank peers -- including Bank of America Corp. (BAC), JPMorgan Chase & Co., (JPM) and Wells Fargo & Co. (WFC) -- saying it plans to participate in the second-mortgage modification program as part of the government's Home Affordable Modification Program, providing additional help to struggling homeowners.

That news followed on the heels of Bank of America's announcement Wednesday that it would make principal forgiveness a priority for certain subprime mortgages.

Citi and Bank of America were among the top gainers, rising 5.3% to $4.37 and 4.1% to $18.29, respectively. Wells Fargo gained 3.3% to $31.89, while JPMorgan was up 2.3% at $45.97.

Raymond James analyst Anthony Polini said that loan-modification news is a bit psychological, but it also points to "a softer landing for the housing market," as losses will be spread out over a couple of years instead of a couple of quarters.

He added the banks' first-quarter reporting dates are moving closer, with JPMorgan set to kick off bank earnings season April 14. Credit quality is likely to be a positive catalyst in banks' results for the quarter, he said.

Insurers posted gains, led by American International Group Inc. (AIG), which rose 6.3% to $35.27. Progressive Corp. (PGR) rose 3.3% to $19.09 after an upgrade from Janney Capital Markets earlier in the day.

REITS also rose, with Pennsylvania Real Estate Investment Trust (PEI) leading gainers, up 4.8% to $12.99. Diamondrock Hospitality Co. (DRH) rose 4.3% to $10.12, while SL Green Realty Corp. (SLG) gained 3.9% to $56.94.

-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com
Marshall & Ilsley (NYSE:MI)
Historical Stock Chart
From Jun 2024 to Jul 2024 Click Here for more Marshall & Ilsley Charts.
Marshall & Ilsley (NYSE:MI)
Historical Stock Chart
From Jul 2023 to Jul 2024 Click Here for more Marshall & Ilsley Charts.