Financial stocks rebounded after several straight days of declines Tuesday, as rate cut fears ebbed and merger talk increased in the space.

Consumer confidence fell in June to its lowest level in 16 years, giving investors some hope that the Fed will back off its recent hawkish stance on interest rates as the economy remains in the doldrums.

Wachovia

(WB) - Get Report

also provided a spark to the sector, as reports emerged that the Charlotte, N.C.-based bank hired investment bank

Goldman Sachs

(GS) - Get Report

to advise it of its options on its decimated loan portfolio. Wachovia said that Goldman will "perform analytics on our loans to evaluate various alternatives." Wachovia jumped 5.3% to $17.82 and Goldman rose 2.2% to $182.47.

Overall, the

NYSE

Financial Sector Index advanced 61.12 to 6,555.43.

NYSE Euronext

(NYX)

saw its shares tick up fractionally to $56.63 after it said it was acquiring a 25% stake in Qatar's Doha Stock Market. The deal is expected to close in the fourth quarter and will cost roughly $250 million.

Merrill Lynch

(MER)

also made an international play with the acquisition of Chile's oldest stock brokerage, Ureta y Bianchi Corredores de Bolsa. Shares of Merrill rose 1.8% to $35.15.

UBS

(UBS) - Get Report

shares enjoyed a boost from takeover rumors on Tuesday. The stock gained 6.7% in heavy volume to $21.98 on unconfirmed reports that

HSBC Holdings

(HBC)

would make a bid for the bank. HSBC was only up 10 cents to $79.14 on the news.

Washington Mutual

(WM) - Get Report

was experiencing mixed trading after a Lehman Brothers report said the beaten down bank may have to set aside as much as $30 billion for credit losses through 2011. On a positive note, ratings agency Fitch reaffirmed its ratings for the bank. WaMu began the day with positive movement then slid to negative territory. Recently it was only down 16 cents to $5.80.

And finally,

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

were mixed on news that a housing bill moved forward on a test vote toward its expected final passage. A U.S. Senate bill will set up a $300 billion refinancing fund under the Federal Housing Administration and retool the federal regulator for the government-sponsored mortgage giants. Even as a government report on Tuesday said home prices fell 4.6%, Fannie was up 14 cents to $22.48 and Freddie was down 5 cents to $19.84.