Updated from 1:50 p.m. EDT

Financial stocks bounced higher to recover from some of Friday's steep losses as the sector was lifted by positive analyst notes and

Freedom Acquisition Holdings

( FRH), which leapt 7% to $11.18 after announcing a reverse $3.4 billion merger with Britain-based GLG Partners.

Freedom agreed to pay $1 billion in cash and 230 million of its shares in order to form a publicly traded company called GLG, of which Freedom holders will own about a 28% stake (per Freedom's closing price Friday). Current GLG holders have also agreed to reinvest about half of their after-tax cash proceeds into GLG's funds on closing, which should occur early in the fourth quarter.

New York-based

Amtrust Financial

(AFSI) - Get Report

jumped 2.4% to $18.70 after the insurance broker agreed to buy a Florida-based workers' compensation insurer, Associated Industries Insurance, for $41.2 million.

Meanwhile, Friedman Billings raised both

Meadowbrook Insurance

(MIG)

and

First Community Bancorp

(FCBP) - Get Report

to outperform, boosting shares of each, by 5.9% and 1.4% respectively.

Cleveland's

National City

( NCC) tacked on 1.9% to $33.77 on an upgrade to hold from sell at A.G. Edwards.

Broker

Morgan Stanley

(MS) - Get Report

closed down 6 cents to $84.54. Insurer

Conseco

(CNO) - Get Report

was up 36 cents to $20.87. Pawnshop operator

Cash America International

(CSH)

was up $1.04 to $39.97.

Elsewhere, Texas-based financial-services firm

Life Partners

(LPHI) - Get Report

rose 5.5% to $37.25 after announcing it had been preliminarily added to the Russell Microcap Index.

Doral Financial

(DRL)

was among few financial losers Monday, plummeting 30.6% after FBOP, its second-largest shareholder,

dropped

its

competing takeout bid

for the struggling Puerto Rico lender.

The offer, announced earlier this month, would have given current Doral holders $1.41 a share in cash and a 20% stake in the company, vs. a prior

Bear Stearns

( BSC)-led

proposal

for a steeply discounted per-share price and a 10% stake for current holders. Doral investors may now have to settle for the Bear offer. Shares of Doral closed off 49 cents to $1.11.

Also trailing today were subprime-mortgage lender

Novastar Financial

( NFI), down 7.2%; brokerage

Friedman Billings

(FBR)

, down 1.2%; and insurer

MBIA

(MBI) - Get Report

, which slid 3.1% at $61.77.

The

NYSE

Financial Sector Index was down 0.6%. The KBW Bank Index was down 0.4%.