NEW YORK (Reuters) - U.S. bank shares rose for a second straight day Thursday on hopes that a planned government "stress test" will help the ailing sector get closer to a fix, and on diminished fears about potential nationalization.
Investors were also encouraged by news the Obama administration is considering an additional $250 billion in its budget to help rescue the financial system.
The KBW Bank Index <.BKX> of larger lenders was up 9.5 percent in morning trading. Bank of America Corp
Regional banks posted stronger gains, including Fifth Third Bancorp
"It's more continued favorable feelings about the stress program the government is implementing right now," said Robert Lutts, president and chief investment officer of Cabot Money Management.
The tests will help determine whether a bank needs more government capital injections that could dilute the value of shares held by investors.
Investors also took heart from Federal Reserve Chairman Ben Bernanke's testimony to Congress about bank nationalization. He ruled out nationalizing U.S. banks in a way that would wipe out shareholders.
"What's been said in the last days by Bernanke -- that we don't need to nationalize banks -- (shows) they're trying to ease fears," said Linda Duessel, market strategist at Federated Investors in Pittsburgh. "Now this budget has an additional $250 billion financial rescue, and it's about a rescue that doesn't wipe out shareholders."
Stocks saw a further bounce on similar comments by White House economic adviser Paul Volcker, who told a congressional committee that full-scale nationalization, where entire firms fell into public hands, was not likely.
(Reporting by Juan Lagorio, additional reporting by Rodrigo Campos, Leah Schnurr, and Deepa Seetharaman, editing by John Wallace)
