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Financial stocks lead broader market higher

SAN FRANCISCO (MarketWatch) — Financial stocks led a broad market rally Wednesday as shares of Citigroup Inc. extended their recent winning streak.

Banks received a boost from promising news out of Europe as Jose Manuel Barroso, president of the European Commission, laid out a plan to strengthen the region’s banking system. Read more on Barroso's plan.

Citigroup (XNYS:C) rose 5.7% to $29.44 in recent activity, putting the shares’ gain for the week at nearly 20%. The shares, however, are still down about 38% for the year.

Earlier Wednesday at a conference sponsored by Fortune Magazine, Citigroup Chief Executive Vikram Pandit reportedly said that the country isn’t heading back into recession and that he supported the so-called Volcker rule to place restrictions on proprietary trading.

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Although Citigroup lawyers are still parsing through the draft rule, Pandit told attendees the rule “may have struck the right balance on both sides.”

The Financial Sector SPDR ETF (ARCX:XLF - News), which tracks financial stocks included in the S&P 500 Index, rose 3.1%, and the SPDR KBW Bank ETF (ARCX:KBE - News) advanced 3.9%. Financials ranked as the best-performing of the 10 sectors within the S&P 500, with shares up collectively 3.1%.

Meanwhile, shares of Dow Jones Industrial Average (DJI:^DJI - News) component J.P. Morgan Chase & Co. (XNYS:JPM - News) rose 3.5% ahead of third-quarter financial results due out Thursday.

The bank is forecast to earn 93 cents a share for the quarter on revenue of $23.55 billion, according to consensus estimates as compiled by FactSet Research.

Lately, analysts have been cutting profit estimates for banks due to lower trading revenue as well as uncertainty over Europe solving its debt crisis.

Goldman Sachs Group (XNYS:GS - News) is expected to post a sharply lower quarterly profit when it reports results Oct. 18.

Among the other financial stocks in the Dow, American Express Co. (XNYS:AXP - News) rose 3%, Travelers Co. (XNYS:TRV - News) added 2.3% and Bank of America Corp. (XNYS:BAC - News) advanced 4.3%. Earlier in the day, the Dow (DJI:^DJI - News) re-entered positive territory for the year.

Among other banks, shares of Wells Fargo & Co. (XNYS:WFC) rose 4.6% as and Regions Financial Corp. (XNYS:RF - News) tacked on 7.5%.

Other notable gainers with gains of more than 5% included E-Trade Financial Corp. (XNAS:ETFC - News) Invesco Ltd. (XNYS:IVZ - News), American International Group Inc. (XNYS:AIG - News), Genworth Financial Inc. (XNYS:GNW - News) and Lincoln Financial Corp. (XNYS:LNC - News).



Wallace Witkowski is a MarketWatch news editor in San Francisco.



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