Banks drive US stocks up sharply

Big gains in banking stocks have pushed Wall Street sharply higher after one of the biggest banks in the US said it would make record profits this quarter.

Wells Fargo announced on Thursday it would make a profit of $3bn (£2bn) in the first three months of 2009.

The news sparked a significant bounce in financial stocks, led by Bank of America, which jumped 35%, and Wells Fargo itself, which climbed 32%.

As a result, the Dow Jones index rose 246 points, or 3.1%, to 8083.4.

'Record profits'

Other financial stocks also climbed sharply.

American Express closed up 19.8%, JP Morgan Chase climbed 19.4% and Citigroup gained 12.6%.

European markets also closed up, with the UK's FTSE 100 index rising 1.5%, Germany's Dax gaining 3.1% and France's Cac 40 climbing 1.8%.

The surge on Wall Street was largely down to the Wells Fargo announcement.

"The fact that Wells Fargo can have record profits despite the troubles facing the banking system tells you something. It's very good news," said Rick Campagna at 300 North Capital.

The troubles of the banking sector are seen as one of the root causes of the global economic downturn.

'Outstanding franchise'

Governments all over the world are focusing efforts to stimulate their economies on banks, primarily by trying to get them to start lending again.

Some banks have been nationalised, while governments have taken large stakes in others.

Investors were, therefore, delighted to hear that one of the biggest banks in the US is on course to record profitability.

Wells Fargo said it expected revenue of $20bn for the first quarter of this year, translating into "another quarter of double-digit revenue growth" of 16%.

Part of the strong performance was due to the bank's acquisition of Wachovia, which was the fourth-largest US bank, after it almost collapsed last year.

"Wachovia's outstanding franchise has proven to be everything we thought it would," Wells Fargo said.

Markets were also buoyed by better than expected March sales figures from some of the biggest retailers in the US.

The pressure is now on other banks to post strong results.

"I'm not sure everyone will be as successful, but we'd like to hope that the success will spill over," said Ted Aronson at Aronson-Johnson-Ortiz.

Some banks report results next week and, if they are weak, markets could fall back.