NEW YORK — Wall Street snapped out of its stupor and posted its best performance of the year Tuesday, finding a badly needed glimmer of optimism in the most unlikely of places: Citigroup is actually managing to turn a profit.
The 379-point gain for the Dow Jones industrials, a rally of almost 6 percent, was a welcome break from almost uninterrupted selling. But just as almost nobody expects the banks to snap back to health, almost nobody thinks the market has hit its bottom.
"One day isn't going to make a trend," said Kurt Karl, chief U.S. economist at Swiss Re.
Citigroup chief executive Vikram Pandit said in a letter to employees that the bank had operated at a profit for the first two months of this year and was on track, based on historical trends, to make $8.3 billion for the quarter.
Pandit said the bank has had its best performance since the third quarter of 2007, the last time it booked a quarterly profit.
The news broke a months-long torrent of bad news from the banking industry, particularly for Citi, which had grown so shaky the federal government had to take a 36 percent ownership stake.
Banking stocks led the markets higher all day. The Dow finished at 6,926.49, its highest close since late February. All 30 of the Dow industrial stocks gained ground.
Citi itself finished at $1.45, a gain of 40 cents. Last week, its stock fell below $1, a level so stunning it left the bank at the mercy of late-night comedians.
Among other banking stocks, Bank of America gained 28 percent, JPMorgan Chase gained 23 percent, and Wells Fargo & Co. gained 18 percent.
Broader markets also enjoyed substantial gains. The Standard & Poor's 500 index gained 43.07 points Tuesday to close at 719.60, still less than half of its value at the market peak in October 2007.
Meanwhile, the tech-heavy Nasdaq index closed the day at 1358.28, a gain of 89.64 points.
Jon Merriman, chief executive of brokerage Merriman Curhan Ford in San Francisco, said the letter from Citi's CEO shows the bank is lending. Government officials and market analysts alike have said more lending is key to an economic recovery.
Investors were also encouraged by Federal Reserve Chairman Ben Bernanke's call for an overhaul of the country's financial regulatory system. Speaking before the Council on Foreign Relations, Bernanke said companies deemed "too big to fail" must be subject to more rigorous supervision to prevent them from taking on excessive risk.
But there was still plenty of pessimism on Wall Street.
"There's nothing that anybody can do to turn the market around," said Harry Rady, chief executive of Rady Asset Management. "This is just a little bear market blip."
Halliburton was hesitant even to put much stock in the Citigroup announcement for fear that rising losses on loans could eat away at the bank's operating profit.
As long as housing prices are falling and loan defaults are rising, "they are going to have to take asset writedowns," he said. "I don't think this is a game-changer."