(Adds Jefferies, Legg Mason; updated share prices throughout.)

Financial stocks closed out Thursday on a positive note, even as

Federal Reserve

Chairman Ben Bernanke was grilled by a congressional committee about his role in steering

Bank of America

(BAC) - Get Report

away from abandoning its deal for

Merrill Lynch

late last year.

Bernanke faced intense questioning from the House Oversight and Government Reform Committee over whether he and the Fed pressured BofA to close the deal. BofA CEO

Ken Lewis alluded to facing some pressure to complete the deal as shareholders increasingly criticized him for paying too high a premium for the ailing brokerage. Separately,

BofA said on Thursday that once it completes a debt exchange by the end of the week, it will have raised more than the $33.9 billion required by the government.

BofA shares spent most of the day in negative territory, but ended the day flat at $12.35. The NYSE Financial Sector Index was rose 62.96 points to 3868.48 and the KBW Bank Index ticked up 0.68 to 36.26.

Big bailout recipient

American International Group

(AIG) - Get Report

is spinning off two life insurance subsidiaries into special purpose vehicles and in turn giving the government a preferred stake in the companies. The move will lower its loans to the U.S. from $40 billion to $15 billion and cut the credit facility available to AIG from $60 billion to $35 billion. The stock was essentially unchanged for the day finishing up with a gain of four cents to $1.46.

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

will both be removed from the Russell indexes as of the close of business on June 29. The stocks were under pressure, as index related funds have to reconstitute their portfolios. Fannie trimmed one cent to close at 63 cents and Freddie was unchanged at 68 cents a share.

In the winner's circle for the day was student lender

Sallie Mae

(SLM) - Get Report

, after it was upgrade by JPMorgan to overweight from neutral and given a target price of $12. The stock jumped 10.4% to $9.20.

Jefferies Group

(JEF) - Get Report

got a lift after it suggested it had a strong outlook for its second quarter. After the close Wednesday, the investment bank announced it would earn more than $50 million on revenue of more than $500 million for the quarter to be reported on July 21. The stock shot up 6.6% to $21.80.

Legg Mason

(LM) - Get Report

shares traded up over $26 in the early session on heavy volume due to rumors that Trian Fund Management might increase its stake in the firm. When neither Legg nor the activist investor Nelson Peltz, who runs Trian would confirm the rumor, the stock slid back during the afternoon. An analyst also upgraded the stock based on the rumor, further confusing investors. The stock ended the day up nine cents to $24.57.