Rally Fades on Bank Profits

Stocks on Wall Street advanced Tuesday but pared gains after Citigroup’s steep drop in profit gave investors a reason to unload bank shares.

The late-day sell-off reflected a reversal in prevailing sentiment, when earlier optimism about the economy and China’s growth prospects drove the major stock indexes up about 1 percent.

The Dow Jones industrial average closed up 0.5 percent to 12,482.07, while the Standard Poor’s 500-stock index was up 0.4 percent, to 1,293.67 The Nasdaq composite index was up 0.6 percent to 2,728.08.

Across the Atlantic, the FTSE 100 in London added 0.7 percent.

The financial sector took a hit from investors’ disappointment with Citigroup’s earnings. Citigroup’s stock slid 8 percent to a session low at $28.16 after the bank reported weaker-than-expected earnings. The KBW Banks Index lost 1.4 percent.

Citigroup’s results followed similarly disappointing earnings on Friday from JPMorgan Chase.

“It was expected that some of the big banks would continue struggling, especially those heavily involved in investment banking, because that part of the financial system has clearly slowed down,” said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management in Champaign, Ill.

Earlier in the day, stocks rallied about 1 percent after data showed China’s economy expanded at the weakest pace in two and a half years, suggesting that officials may try to increase growth in the near term by tweaking monetary policy.

The news followed the widely expected announcement late Friday by Standard Poor’s that it was downgrading the credit ratings of nine euro zone countries.

Also Tuesday, Wells Fargo posted a 20 percent jump in quarterly profit. Wells Fargo’s stock, which earlier had risen to a session high at $30.69, pulled back sharply and was up just 0.7 percent at the close.

The Treasury’s 10-year note rose 4/32, to 101 9/32. The yield fell to 1.86 percent, from 1.87 percent late Friday.

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