Sure the banks are in great shape

NEW YORK (Dow Jones) – U.S. bank stocks moved higher again Wednesday and gave the broader stock market a lift, after heavyweights JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) reported damaged but better than expected first quarter earnings.

The move built on the lift the sector got Tuesday from mediocre but also better than expected earnings from regional banks U.S. Bancorp (USB) and Regions Financial Corp. (RF).

The Financial Select Sector SDPR, an exchange-traded-fund that tracks financial companies in the Standard & Poor’s 500, rose 2.3% in recent trading. The Dow Jones Industrial Average was up 1.5%, or 182 points, helped by JPMorgan, whose shares were up 4.5%.

Still, many on Wall Street are concerned the gains could be short-lived. In another indication banks aren’t yet out of the woods, JPMorgan noted on its conference call that the number of soured loans in its book of prime mortgages is rising quickly. The comments were an indication housing trouble isn’t confined to subprime loans and a possible harbinger of more damage to come for even those banks who used the most conservative underwriting standards.

Trouble in prime mortgages could weigh heavily on regional banks, a sector where some companies like National City Corp. (NCC) are already looking for cash or acquisition partners to shore up balance sheets.

“Regional banks haven’t really suffered yet,” said James McGlynn, portfolio manager for the Summit Everest Fund. “The money center banks have had to write down, but regionals don’t get as pressured and are just now starting to fess up.”

In addition, the Wall Street Journal reported that Merrill Lynch & Co. Inc. (MER) will disclose $6 billion to $8 billion in new write-downs when it announces its first quarter earnings Thursday.

The investment bank has already taken about $25 billion in write-downs stemming from the credit crisis. Hard-hit Citigroup Inc. (C) reports earnings Friday.

The results from JPMorgan and Wells Fargo, in addition to well-received earnings reports by Intel (INTC) and others, are for now offsetting concerns sparked last Friday by the big miss by General Electric Co. (GE).

Investors are paying close attention to industrial and consumer companies for evidence the crisis in financial markets is spilling over into the real economy. Banks, however, are still able to give stocks a lift if the news is as bad as expected.

“We came into this thing quite concerned with GE’s, and we’re getting a little bit of relief in that regard,” said Steven Goldman, chief market strategist at brokerage Weeden & Co.

JPMorgan said Wednesday its first-quarter earnings fell 50% to $2.37 billion, or 68 a share, as the company marked down $2.6 billion in leveraged lending and mortgages and quadrupled its credit-loss provision. Analysts were expecting 64 a share.

Meanwhile, Wells Fargo said its first-quarter net income fell to $2 billion, or 60 cents a share, from $2.24 billion, or 66 cents a share, a year earlier, though it was helped by growth in loans at wider spreads, core deposits and liquidity. Analysts had expected earnings of 57 cents a share. Shares of Wells Fargo surged 6.2%.