NEW YORK — Treasury Secretary Timothy Geithner persuaded Wall Street to give banks another chance Tuesday.
Geithner’s assertion that “the vast majority” of banks have enough capital pulled stocks from a slump that began with a sell-off Monday and spilled over into Tuesday morning. Geithner also told a congressional oversight committee that some banks would be allowed to repay financial- bailout funds with the blessing of bank regulators.
The comments signaled that banks might not get poor marks in government “stress tests” designed to determine whether they have enough capital to survive if the economy turns even worse. The results are due May 4.
“There is the hope that everything will be well after the stress test,” said John Nichol, senior portfolio manager at Federated Investors.
The Dow Jones industrial average jumped 128 points after tumbling 290 points Monday on worries about bad debt at banks and the implications of the stress tests. The drop punctuated a six-week rally that lifted stocks more than 20 percent from their lowest levels in more than a decade.
Stocks fluctuated in the early going Tuesday after a string of lackluster earnings reports, and forecasts stoked worries about how quickly the economy can recover.
The Dow rose 127.83, 1.6 percent, to 7,969.56.
Broader stock indicators showed the biggest gains. The Standard & Poor’s 500 index rose 17.69, 2.1 percent, to 850.08, and the Nasdaq composite index rose 35.64, 2.2 percent, to 1,643.85.
Bank stocks, which led the market lower Monday, bounced back after Geithner’s comments.
JPMorgan Chase rose 9.6 percent, Citigroup jumped 10.2 percent, and Goldman Sachs rose 4.7 percent.
The fortunes of bank shares have largely dictated the stock market’s direction since the fall of Lehman Brothers in mid-September, and investors took Geithner’s comments as a reason to go back into the market.
Some analysts attributed the buying to short-covering, where investors have to buy stock after having earlier sold borrowed shares in a bet that the market would fall.
