Bank shares rally to lead Wall Street higher

NEW YORK (Reuters) - Stocks rose on Thursday led by bank shares as investors bet a stronger economy will help boost balance sheets of U.S. based lenders.

U.S. financial shares continued to delink from European peers, indicating investors were taking a closer look at the sector and finding bargains.

U.S. banks as measured by the KBW index <.BKX> posted their third day of gains, extending the week's advance to more than 6 percent. Bank of America Corp jumped 7.4 percent to $6.24 and Wells Fargo & Co gained 2.6 percent to $29.31.

The market opened lower as traders focused on heavy losses in European bank shares, led by UniCredit . Italy's largest bank by assets has lost more than 30 percent of its market value this week after it priced a share offering meant to shore up its ravaged balance sheet.

Other European banks followed suit, and an index of the region's lenders' shares <.SX7P> tumbled 3.2 percent.

"Maybe we are so far ahead of where European banks are in terms of our banks having sufficient capital it gave investors some comfort," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

"It is a telling sign of the strength of the overall U.S. economy because they provide the raw material for businesses to grow."

Data continued to point to a strengthening U.S. economy. More than twice the expected number of private sector jobs were added in December while initial jobless claims dropped 15,000 in the latest week. In addition, the pace of U.S. services growth quickened more than expected in December.

The Dow Jones industrial average <.DJI> rose 17.03 points, or 0.14 percent, to 12,435.45. The S&P 500 Index <.INX> added 5.01 points, or 0.39 percent, to 1,282.31. The Nasdaq Composite <.IXIC> gained 22.97 points, or 0.87 percent, to 2,671.33.

Despite solid demand for a French government debt sale, investors fretted about more fragile economies, such as Italy and Spain. The euro, which has been closely correlated to global equities, fell to a 15-month low against the dollar.

The Nasdaq was boosted by strength in technology shares. Marvell Technology Group Ltd gained 6.6 percent to $15.12 while Seagate Technology Plc was up 5.3 percent to $17.71.

The S&P retail index <.RLX> edged up 0.2 percent as December sales rose, though discounts cut into profits over the holiday shopping season. Target Corp fell 3.1 percent to $48.45 while Macy's Inc added 3.6 percent to $33.82.

Dendreon Corp jumped 37.3 percent to $10.43 after its revenue jumped more than three-fold as sales of its prostate cancer vaccine took off.

Bookstore chain Barnes & Noble Inc fell 18.3 percent to $11.07 after it said it may split off its Nook electronic reader business and cut its full-year earnings forecast.

Also on the downside, Tesoro Corp tumbled 7 percent to $22.36 after it forecast a fourth-quarter loss. The warning sent shares of peers Valero Energy Corp and Marathon Petroleum Corp lower.

(Reporting by Rodrigo Campos; editing by Jeffrey Benkoe)

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