Bank stocks set to rebound

Shares of key financial stocks gather steam early Tuesday after Monday's market plunge on bargain hunting and hopes for a new bailout.

Hard hit bank stocks appeared set to rally along with the broader market Tuesday -- one day after the rejection of the $700 billion bank bailout bill in the House sparked the biggest one-day point decline in the Dow ever.

Shares of National City were up nearly 35% in pre-market trading.

The Cleveland-based bank's stock plunged nearly 60% Monday as investors worried that it could be the next bank to face severe financial pressure following the collapse of Washington Mutual last week and the fire sale of Wachovia's banking assets to Citigroup Monday.

Shares of top banks Citigroup , JPMorgan Chase, Wells Fargo and Bank of America all rose in pre-market trading as well, as did the stocks of investment banks Goldman Sachs and Morgan Stanley.

And Wachovia Corp. gained nearly 30% in pre-market trading, after plunging more than 80% on Monday. Although Wachovia is selling most of its banking assets to Citigroup, the company is holding onto its A.G. Edwards brokerage division and Evergreen investment management unit.

Art Hogan, chief market strategist for Jefferies & Co., said that a possible rebound in the stock market -- and for bank stocks in particular -- isn't just a case of bargain hunting. He said Tuesday's market action looks like it will be driven by hope that Congress will pass a modified financial bailout bill in the next few days.

"If the sell-off was predicated on us not passing a rescue package yesterday, then there's a common belief that we'll get a rescue package sometime this week," Hogan said.

The bailout package was rejected in Congress on Monday in a 228-205 vote.

The bill, if approved, would have allowed the federal government to buy troubled mortgage-related investments from financial firms.

Proponents of the bill said this would allow banks to lend more freely and help end the credit crisis. Opponents argued that the bailout as an unbearable burden to taxpayers and an undeserved rescue for greedy Wall Street fat cats.

Bank stocks have been particularly volatile in the past few weeks as more firms fell by the wayside as a result of the financial turmoil.

In addition to Monday's sale of most of Wachovia to Citi and last week's collapse of WaMu and its subsequent takeover by JPMorgan Chase, investment bank Lehman Brothers field for bankruptcy, Bank of America bought Merrill Lynch and the government took over insurer AIG.

"[There's] a lot of fear and a lack of confidence in the financial sector," said Hogan. "The volatility is as bad as we've ever seen it. That's not just yesterday and today. That's the entire year."

Source: Money.cnn.com