Banking rally boosts US markets

Markets have been eager to pounce on some good news

US stock markets have rebounded strongly after better-than-expected results from a leading bank and further sharp falls in the price of oil.

The Dow Jones index closed up 2.5% after its strongest daily performance in three months, driven by demand for leading bank stocks.

Citigroup, Bank of America and JP Morgan all rose sharply after Wells Fargo boosted its shareholder dividend.

Oil, meanwhile, fell more than $4 to close below $135 a barrel.

Significant change'

The price of oil has now fallen more than $10 in the last two days - closing at $134.60 on Wednesday - on expectations that a slowing US economy will curb global demand for crude and ease pressure on companies highly dependent on oil.

The market clearly had digested what the impact was going to be if oil prices had stayed at that level Dan Genter, investment analyst Bernanke on mortgage firms

"I think the pullback in oil is significant," said analyst Dan Genter.

"The market clearly had digested what the impact was going to be if oil prices had stayed at that level."

On a day of mixed economic signals, figures showed that consumer price inflation is now rising at its fastest pace for 17 years.

However, separate data on industrial production showed surprising resilience in the manufacturing sector with monthly output recovering after two months of decline.

The Dow Jones closed up 276.74 points at 11,239.28, its best performance since 1 April, having slipped below the 11,000 mark on Tuesday.

'Relief'

A broad rally in the banking sector, hammered recently by concerns over talk of further losses connected to the housing market, propelled the market upwards.

Shares in Citigroup, Bank of America and JP Morgan all soared after Wells Fargo saw higher than expected profits and pledged to raise its dividend by 10%.

Bank of America shares rose 22% while shares in the two beleaguered mortgage firms Fannie Mae and Freddie Mac rose 30% after Federal Reserve chairman Ben Bernanke told Congress the two were in "no danger" of collapsing.

"There's almost a feeling of relief out there," said Matt McCormick, an analyst at Bahl & Gaynor Investment Counsel.

"There's a great deal of interest in financials turning the corner."