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Stifel Nicolaus asks if bank rally is near an end

NEW YORK -- A banking analyst at Stifel Nicolaus is wondering whether the rally in bank stocks has gone too far.

Anthony Davis, who leads the financial institutions team at Stifel Nicolaus, points to a number of factors that could weaken the bank-stock rally in a research note out Thursday. The pace of earnings growth for banks has begun to slow, Davis says, and loan growth is expected to stay weak. Both short- and long-term interest rates are likely to remain near historic lows, another weight on revenue, he wrote.

"In short, banking's revenue challenge is not going away," Davis writes.

Bank stocks no longer look very cheap, Davis says. The group of banks covered by Stifel Nicolaus analysts trade at 13 times expected earnings over the next year. That's just 91 percent of the average from 1995 through last year.

Even so, bank stocks continued their run in midday trading Thursday, outpacing the overall market. Morgan Stanley led the Wall Street banks, jumping 2.7 percent, or 47 cents, to $17.87. Citigroup surged 1.8 percent, or 65 cents, to $35.79.

Zions Bancorp., a regional bank, gained 2.5 percent, or 55 cents, to $22.41.

Of the 10 industry groups within the S&P 500 index, bank stocks have been the top performer over the past three months as well as for the year. The group has gained 11 percent since mid-July and 23.8 percent in 2012.

Over the same time periods, the S&P 500 index has gained 7.5 percent and 14.7 percent, respectively.

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