Wall Street rebounds modestly, banks gain

NEW YORK (Reuters) - Stocks advanced modestly on Friday, as gains in banking shares helped the S&P 500 index rebound from its second-worst decline of the year.

The index dropped 2.2 percent on Thursday, its biggest drop since a 2.5 percent fall on June 1, as evidence mounted of slowing manufacturing growth worldwide, a threat to corporate profits.

"Definitely a bounce here although it is simply a reaction to how sharp the selloff was yesterday," said Tim Ghriskey, Chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Bank shares rose after ratings agency Moody's downgraded 15 of the world's biggest banks on Thursday, lowering credit ratings by one to three notches to reflect their risk of losses from volatile capital market activities.

Morgan Stanley added 1 percent to $14.10 and Bank of America Corp rose 1.2 percent to $7.91, as many of the ratings cuts weren't as deep as expected. The KBW Bank index gained 0.8 percent.

"The banking world is undergoing a major transformation and a lot of questions about the concept of ?too big to fail' and all of that so I'm not surprised to see the new rating levels - ratings agencies are always backward looking and that is what that reflects," said Ghriskey.

Markets are expected to see a volume spike at the close, just before Russell Investments sets the final rebalance of its indexes, in which $3.9 trillion in assets are benchmarked to globally.

After falling for two consecutive sessions, the S&P 500 index is down 0.9 percent for the week, but remains on track for its first monthly gain in three months.

The Dow Jones industrial average gained 55.40 points, or 0.44 percent, to 12,628.97. The Standard & Poor's 500 Index climbed 5.20 points, or 0.39 percent, to 1,330.71. The Nasdaq Composite Index advanced 9.60 points, or 0.34 percent, to 2,868.69.

European shares extended the previous session's losses triggered by poor macroeconomic data. The FTSEurofirst 300 index of top European shares fell 0.5 percent.

The leaders of Germany, France, Italy and Spain met in Rome on Friday to find ways to restore confidence in the euro zone ahead of a full EU summit next week, which Italy's prime minister called a defining moment.

Darden Restaurants Inc dipped 1.8 percent to $49.46 after the restaurant operator reported fourth-quarter earnings. The company expected its business environment in 2013 "to be similar to 2012, with slow and uneven recovery in economy and industry.

Ryder Systems Inc slumped 11.5 percent to $36.03 as the worst performer on the S&P 500 after the logistics company cut its quarterly earnings forecast, amid lower demand for its commercial rental services.

(Editing by Bernadette Baum)

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