Shares of Bank of America Corp and Citigroup Inc powered to multiweek highs on Wednesday on optimism over government efforts to stimulate lending.

Bank of America surged $1.40, or 22.3 percent, to $7.67, its highest close since January 15. Citigroup jumped 22.7 percent, or 57 cents, at $3.08, its highest finish since February 13. Trading volume for the two banks on Wednesday neared 2 billion shares.

The stocks have tripled from multidecade lows less than a month ago. Citigroup shares bottomed at 97 cents on March 5, and Bank of America at $2.53 on February 20.

The broad KBW Bank Index <.BKX> rose 11.1 percent to its highest close since February 9, after a surprise U.S. Federal Reserve move to buy up to $300 billion in government debt and more mortgage-related debt to help unlock credit markets.

By expanding purchases to other asset classes, the Fed is trying to take pressure off the values of assets that banks hold on their balance sheet, particularly in the housing sector, said Mark Freeman at Westwood Management Corp in Dallas which invests $7.5 billion. Banks are hesitant to lend because from a credit standpoint, their balance sheets are restrained.

The Fed action is intended to make it easier for consumers and businesses to borrow and could spur greater activity and earnings at banks.

At the core of this problem remains the housing market, the liabilities the banks have with mortgages and the ability to stabilize prices, said Rick Meckler, president of LibertyView Capital Management in New York. Like a lot of people, I'm open to creative ideas to help stabilize (it).


Citigroup traded at $56.66 as recently as December 2006,while Bank of America hit $55.08 a month earlier.

Bank shares were already on the upswing after the chief executives of Bank of America, Citigroup and JPMorgan Chase & Co said last week they were profitable in January and February.

Bank of America and Citigroup each got federal bailouts that limited losses on troubled assets and split $90 billion of capital from the Treasury Department's Troubled Asset Relief Program (TARP). JPMorgan took $25 billion from TARP.

Bank of America CEO Kenneth Lewis told the Charlotte Observer on Wednesday that Bank of America might be able to repay its TARP money late this year.

Meanwhile, the Financial Accounting Standards Board issued proposals Wednesday to help companies apply mark-to-market accounting rules. Critics of the rules say they have forced banks to write downs assets to artificially distressed levels, depleting capital.

Some of the accounting uncertainty may start to be lifted and that could alleviate some concerns with regard to capital adequacy, said Blake Howells, director of equity research, Becker Capital Management in Portland, Oregon.

In the newspaper interview, Lewis also said Bank of America's January 1 acquisition of Merrill Lynch will be a long-term success. Lewis said the bank will achieve 45 percent of its expected merger savings this year, adding that one-fourth of an expected 35,000 job cuts have been made.

(Additional reporting by Elinor Comlay and Emily Chasan; editing by Dave Zimmerman and Andre Grenon)