- The Washington Times - Tuesday, July 14, 2009

NEW YORK | Investors are betting that strength in banks could juice the entire economy.

Rising financial stocks propelled the stock market to its biggest one-day gain in six weeks Monday after an influential banking analyst raised her rating on Goldman Sachs Group Inc. The bank reports earnings on Tuesday.

The Dow Jones Industrial Average rose 185.16, or 2.3 percent, to 8,331.68. The Standard & Poor’s 500 Index jumped 21.92, or 2.5 percent, to 901.05, its first finish over the 900 mark since July 1. It was the S&P;’s best day since June 1.

The Nasdaq Composite Index rose 37.18, or 2.1 percent, to 1,793.21 and also posted its best performance since the start of June.

Analyst Meredith Whitney’s upbeat, albeit cautious, tone on banks helped lift the Dow in relatively thin trading volume. It was the best performance for the blue chips since June 1 and follows a month of often directionless trading in which investors looked for any fresh sign that the economy was improving, not simply licking its wounds.

Goldman has long been considered the strongest bank amid the economic downturn, but Bank of America has been one of the hardest hit by loan losses. Any improvement in banks’ profits could shore up their financial position and free money for lending.

Beyond Goldman, Bank of America, JPMorgan Chase & Co. and Citigroup Inc. are all scheduled to report second-quarter results this week. Banks have taken some of the biggest blows among U.S. companies since the recession began in late 2007 as investment and loan losses mounted.

“There is a contingency of traders out there that believe the market can’t recover without financials,” said Randy Frederick, director of trading and derivatives at Charles Schwab.

Earnings reports will give investors a chance to see whether there was any meaningful economic improvement during the second quarter, and so far expectations are relatively low. Stocks rallied in the spring amid hope of a recovery in late 2009, but the market has struggled since mid-June as more investors began to doubt that assessment.

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