Stocks Gain, Led by Banks; Dow Rises 100

Stocks gained on a brighter outlook for banks ahead of earnings releases, and as debt troubles in Europe eased after a successful Portuguese bond offering.

The Dow Jones Industrial Average gained more than 90 points a day after the major indexes closed higher as earnings season got off to a strong start.

Most Dow components advanced, led by JPMorgan, Bank of America and Wal-Mart .

The S&P 500 and the Nasdaq also rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to nearly 16.

All key S&P sectors gained, led by financials, energy and industrials.

The successful Portugese bond auction, coupled with strong outlooks for banks published in research reports by several brokerage firms, served as a catalyst to push stocks higher on Wednesday in the early stages of what many investors expect will be an upbeat earnings season.

The positive tone comes as investors realize corporations are well positioned to take advantage of a strengthening economy, said Marc Pado, market strategist at Cantor Fitzgerald.

In the fourth quarter, corporations kept costs low and inventories down as sales rose, Pado said. "There’s the potential for some positive surprises for the fourth quarter, and the prospects for the first quarter are good," Pado said.

"Ultimately we’ll see better jobs data," he added. "As long as that’s the case it’s really hard for bears to get the upper hand here."

Investors were relieved as Portugal was able to sell debtat the top end of its range, resulting in a drop in 10-year note yields, although four-year yields rose slightly in the offering.

Banks rose ahead of major earnings releases, beginning with JPMorgan's on Friday. That bank's stock also got a boost after CEO Jamie Dimon told CNBC JPMorgan is ready to pay an annual dividend of 75 cents to a dollar after it receives approval by the Federal Reserve, which will be stress-testing the largest U.S. banks.

Banks also benefited from Wells Fargo's upgrade of the sector to "overweight" from "market weight." The bank cited the sector's "superior" earnings-per-share growth to the S&P 500.

"We believe continued credit improvement, a return to positive loan growth, and a constructive investment banking outlook will drive average EPS growth of 59% in 2011, well above the 12% expected for the S&P 500," Wells Fargo wrote in a report to clients.

A majority of large and regional banks also rose on Wednesday, including Wells Fargo and Citigroup , as well as US Bancorp , Comerica and Huntington Bancshares .

Meanwhile, JPMorgan downgraded Goldman Sachs to "neutral" from "oveweight" for 2011, citing valuation. Overall, JPMorgan favors European investment banks over U.S. banks, noting that the U.S. banks have outperformed their European peers by 16 percent since the brokerage cited its preference for US investment banks in July 2010.

UBS and Credit Suisse were named JPMorgan's top picks.

ITT soared Wednesday after its board of directors approved a plan to split the diversified manufacturer into three publicly traded companies, separating its defense and information business, its water technology unit and its industrial products business. The split will happen before the end of the year, ITT said.

American International Group accepted a $2.16 billion offer for its Taiwan Nan Shan Life unit. The offer was from a consortium led by local conglomerate Ruentex Group.

General Electric traded flat to slightly lower after Bernstein downgraded the diversified manufacturer (and parent of CNBC) to "market perform," saying GE was approaching fair value. But Credit Suisse confirmed its "outperform" rating for the company on Wednesday, saying GE would continue to trade higher, citing strength in GE's power equipment business.

Oil pricesadded to gains, rising above $92 a barrel after the government said crude oil stocks fell more than expected last week. Meanwhile, the Trans-Alaska Oil Pipelinewas allowed to resume limited operations after a leak that cut U.S. oil supplies by 12 percent.

On the U.S. economic front, import prices rose 1.1 percenton a 3.9 percent surge in energy costs, after a revised 1.5 percent increase in November, the Labor Department reported. Prices rose 4.8 percent for all of 2010.

Applications for U.S. home mortgages rose 2.2 percent for the week ended Jan. 7, to the highest level in a month, as rates edged lower, the Mortgage Bankers Association reported Wednesday.

And at 2 p.m., the Treasury's December budget will be released with the federal deficit expected to show a decrease of $80 billion, according to Briefing.com. The Federal Reserve's January Beige Book will be out at the same time.

And the Bank of China confirmed that it would offer yuan trading to its U.S. customers.

European shares closed higher across the board after the Portugese bond auction, and as banks surged. The FTSEurofirst300 Index ended up 1.4 Percent

Asian indexes closed higher with the South Korean Kospi hitting a fresh closing high.

On Tap This Week:

WEDNESDAY: Oil inventories, 10-year Treasury note auction, Federal Reserve’s Beige Book, Treasury Secretary Timothy Geithner speaks; Dallas Fed President speaks.
THURSDAY: Bank of England and European Central Bank announcements, international trade, PPI, jobless claims, 30-year Treasury bond auction; after-the-bell earnings from Intel.
FRIDAY: CPI, retail sales, industrial production, consumer sentiment, business inventories, Richmond Fed president speaks; before-the-bell earnings from JPMorgan.

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