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Hot Stocks: Brokerages, Fannie Mae Among Big Movers

The beaten-down financial sector got a lift on Monday as shares rose on regulatory speculation and a handful of analyst upgrades.

Financial stocks, as measured by the exchange-traded fund XLF, jumped more than 4% which gave the overall market a boost. The group remains down 9% year to date.

Shares of Fannie Mae were higher on speculation the largest U.S. home funding company could see an easing on lending restrictions by the Office of Federal Housing Enterprise Oversight. Shares of Freddie Mac also advanced on above-average trading volume.

Fannie Mae executives have asked the OFHEO to increase the maximum amount of home mortgages it can hold in its investment portfolio so it can provide more market liquidity, the Wall Street Journal reported Monday afternoon, citing people familiar with the situation.

Calls to Fannie Mae were not immediately returned.

An analyst who covers both Fannie and Freddie said the odds of OFHEO easing restrictions were a "borderline possibility" and probably have no more of a 50% chance of happening.

"All I've heard are rumors, the companies aren't saying anything," said Thomas Mitchell of Miller Tabak. "Without any strings attached and without some specific purpose, I think it's unlikely."

Following accounting problems at Fannie Mae and Freddie Mac , the OFHEO currently limits the size of mortgage holdings.

Mitchell, who has a "hold" rating on Fannie Mae and a "strong buy" on Freddie Mac, noted that some parts of the mortgage market -- particularly for those with below-average incomes -- have come to a "shuddering halt."

"This is exactly the kind of market environment that these two government-sponsored enterprises were designed to provide relief from," he said.

Meanwhile, UBS upgraded shares of Merrill Lynch to "buy," saying the fallout from the firm's mortgage and credit businesses has been mostly discounted in the stock.

Elsewhere in the financial sector, Wells Fargo shares rose after the company said its board authorized a 50 million share stock buyback plan.

Electronic Arts rose after Bear Stearns upgraded the stock to "outperform" from "peer perform."

"With annual industry growth tracking at the high end of estimates and the potential for operational improvements ahead, we believe Electronics Arts shares are positioned for meaningful upside," wrote analyst Edward Urban.

Urban added that "near-term catalysts" include hardware price cuts and a robust holiday release slate.

Tenet Healthcare gained following a Bear Stearns upgrade of the stock to "peer perform" from "underperform," citing valuation. Tenet is set to report second-quarter earnings on Tuesday morning.

"While we do not anticipate positive results, given the large short position and fairly negative sentiment, should anything positive occur there may be risk of a short squeeze," wrote analyst Jason Gurda.

Peter Kang is a markets writer at CNBC.com and can be reached at peter.kang@nbcuni.com.