Investors crave more strong bank results

NEW YORK (Reuters) - U.S. bank stocks are flying high, and next week's earnings could give investors more reason to be optimistic about the sector.

Strong results from JPMorgan Chase & Co on Friday bolstered expectations for top U.S. banks, many of which are due to report next week, including Citigroup and Goldman Sachs .

Financials have been among market leaders in the recent rally, with the Standard & Poor's 500 posting its seventh straight week of gains on Friday.

While the earnings outlook is keeping alive hopes that stocks have more room to run higher, the rise in bank shares has pushed sector indexes to near resistance levels, which could signal a rest stop for the shares in the holiday-shortened week.

The market will be closed Monday in observance of Martin Luther King Jr Day.

JPMorgan Chase on Friday reported profit and revenue that were stronger than analysts had expected, and the CEO said the bank could start to increase its dividend once regulators give the go-ahead, likely at the end of March.

Analysts said the news bodes well for other financials, most of which are due to report results next week.

"Financials could very easily be one of the real darlings of this particular earnings cycle," said Burt White, managing director and chief investment officer of LPL Financial in Boston.

Financials are projected to have by far the highest growth rate in earnings for the fourth quarter, largely because of easy year-ago comparisons, according to Thomson Reuters data.

Overall, S&P 500 earnings are expected to have increased by 32 percent from a year ago, the data showed.

Besides the banks, economic bellwether General Electric as well as marquee tech names Apple , Google and eBay are due to report.

DREAMING OF BANK DIVIDENDS

Investors have been keen for news on when bank dividends will be reinstated, and when it happens, it's going to mean more investment in financials, White said.

"Once they start (paying dividends) ... you're going to see an enormous amount of buying from yield-starved investors, as well as funds and ETFs (exchange-traded funds) that really are going to have to relook at the landscape and put financials back in there," he said.

Among other top banks reporting next week are Morgan Stanley , Bank of America and Wells Fargo & Co .

The sector is benefitting from a steepening bond yield curve, which lets banks make more money on loans; a pickup in merger and acquisition activity, and a decline in loan losses, analysts said.

HEADED FOR RESISTANCE

To be sure, though, the recent sharp rise in the sector could make it tougher for those shares to keep rallying.

The KBW Bank index