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Bank Stocks Mixed as 10-Year Yield Keeps Rising

NEW YORK (TheStreet) -- Capital One Financial (COF) and two major trust banks were the leaders among large-cap bank stocks on Thursday, as improved economic numbers and a recent change in Federal Reserve stimulus policy continued to push long-term interest rates higher.

Shares of Capital One rose 0.7% to close at $75.88, while Northern Trust (NTRS) of Chicago was up 0.7% to $61.71 and State Street (STT - Get Report) of Boston rose 0.7% to $72.73.

The Dow Jones Industrial Average (^DJI) was up 0.8%, while the S&P 500 (^GSPC) rose 0.5% and the NASDAQ Composite (^IXIC) added 0.3%, after the Department of Labor said first-time unemployment claims for the week ended Dec. 21 totaled a seasonally adjusted 338,000 declining from an upwardly revised 380,000 the previous week.  The four-week moving average for initial unemployment claims declined to 348,000, increasing from 343.750 the previous week.

Economists polled by Reuters on average had estimated last week's jobless claims number to come in at 335,000.

Despite being seasonally adjusted, unemployment numbers are typically volatile during the holiday season. 

"The next 'clean' claims report won't be for weeks. But the underlying trend suggests job destruction continues to decline. This is a welcome step in the right direction and further reinforces the Fed's assessment of a stronger labor market," Sterne Agee chief economist Lindsey Piegza wrote in a note to clients Thursday.

Piegza was referring to the determination by the Federal Open Market Committee last week that U.S. economic indicators had improved sufficiently for the Federal Reserve's "QE3" purchases of long-term bonds to be lowered from a monthly pace of $85 billion to $75 billion.  Long-term interest rates had already risen considerably as investors anticipated the Fed's eventual "tapering" of its balance sheet expansion, but rates have risen considerably over the past week.

The market yield for 10-year U.S. Treasury bonds rose by two basis points on Thursday to 3.00%.  The 10-year yield has risen 11 basis points since Dec. 18, the day before the FOMC announced its Fed tapering decision.  The 10-year yield was as low as 1.70% at the end of April.

Piegza was also impressed with the Census Bureau's report on Tuesday, when the agency said durable-goods orders for November rose 3.5% from the October, when they dipped 0.7% in part because of a two-week partial shutdown of the federal government.  That second number was revised upward from the previous estimate of a 2.0% decline during October.

"Most impressive, however, was the outsized rise in business investment," Piegza wrote. "Capital goods, ex defense, ex aircraft orders rose 4.5% in November after falling 0.7% the month prior. November's rise is the strongest monthly increase since January."

According to Piegza, "businesses have been sidelined for quite some time, hesitant to invest in equipment, structures and certainly employees. However, as certainty appears to have returned to Washington in terms of spending and tax policy, at least through 2015, businesses (and consumers) are beginning to loosen their purse strings, particularly amid improving global demand."

The KBW Bank Index (I:BKX) was up slightly to 69.13, with winners and loses roughly split.

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