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Financial shares outperform on rate outlook

MICHELE MOSSOP | Fairfax Media | Getty Images

Financial stocks were top performers for a third day Tuesday, as traders continue to bid up the group on expectations the Fed will raise interest rates this year.

Financial Select Sector SPDR ETF (XLF) gained 0.9 and was up 1.78 percent for the week so far. Stocks of financial companies and banks got a boost when Fed officials Friday signaled that a rate hike was possible in September, though the market odds point toward a December rate hike as more likely.

The SPDR S&P Bank ETF (KBE) has gained about 7 percent month-to-date, and pacing for its fifth positive month over the last 6, and its best month since April. Leaders include Bank of America, Morgan Stanley, and Citigroup.

U.S. bank shares followed European financials higher on Tuesday. The Euro STOXX 600 Banks helped send the European STOXX 600 index higher, with gains of more than 1 percent. The group had its best day in about a week on prospects of a U.S. rate hike.

Deutsche Bank, Commerzbank and Banco Santander were among the winners, gaining as much as 3 percent.

Italy's FTSE MIB earned 1.4 percent, for its best one-day performance in almost a week.

Italian banks traded towards the top of the subgroup with their best day in a week. Investment bank Mediobanca helped lift the index, rising 2.6 percent as the company's CheBanca! completes the acquisition of Barclays Italian retail business. UniCredit also rose 2 percent amid speculation about the lender's business plan.

European banks have had a very tough six months on concerns about Italian institutions and as the volatility around Brexit sent banking stocks south.