U.S. STOCKS - Market inches up as bargains found among banks

By Kevin Plumberg

NEW YORK (Reuters) - U.S. stocks edged up on Wednesday, supported for the second straight day by the banking sector as investors looked for bargains after recent massive write-downs fed optimism that the worst of the credit morass may be over.

Citigroup Inc, the largest U.S. bank by assets, gave the second-biggest boost to the Standard & Poor's 500 Index after being battered by the eight-month-long lending crisis.

Financial services company CIT Group Inc was among the top percentage gainers on the New York Stock Exchange, only nine days after the firm drew down $7.3 billion of credit lines to stay afloat. The stock was up over 12 percent.

Major U.S. stock indexes dipped briefly at the open after Federal Reserve Chairman Ben Bernanke said a contraction in the U.S. economy could occur in the first half of the year and a recession was possible. However, bargain hunters swiftly moved in, particularly with Bernanke expecting the Fed's 3 percentage points of rate cuts since the crisis began to spark economic growth in the second half of 2008.

"Financials are so cheap that they are crowding out the other sectors and making them look expensive," said Jack Ablin, chief investment officer with Harris Private Bank in Chicago.

"I still need financials to outperform the rest of the S&P by about 11 percent for me to confirm that most of the troubles are behind us, though."

The Dow Jones industrial average rose 7.17 points, or 0.06 percent, to 12,661.53. The Standard & Poor's 500 Index was up 4.59 points, or 0.33 percent, at 1,374.77. The Nasdaq Composite Index was up 13.19 points, or 0.56 percent, at 2,376.23.

Shares of Citigroup rose 2.6 percent to $24.47, while shares of CIT jumped 12.2 percent to $14.55.