Updated from 8:07 a.m. EST

J.P. Morgan Chase

(JPM) - Get Report

and a host of regional banks reported strong fourth-quarter profits Wednesday, as the industry's revival gathered strength.

J.P. Morgan, the nation's No. 2 bank, swung to a fourth-quarter profit that easily beat analysts' estimates, reflecting cost controls, strong gains in investment banking fees and an improving credit picture.

The bank earned $1.86 billion, or 89 cents a share, in the latest quarter compared with a loss of $387 million, or 20 cents a share, last year. Excluding one-time items, J.P. Morgan earned $730 million, or 36 cents a share, in the year-ago quarter.

Analysts surveyed by Thomson First Call had been forecasting earnings of 77 cents a share in the most recent quarter.

Last week J.P. Morgan announced a $59 billion deal to buy

Bank One

(JPM) - Get Report

, the nation's sixth-largest bank, in a move to broaden its retail and consumer divisions and close the earnings gap between it and

Citigroup

(C) - Get Report

, the nation's largest financial services firm.

In other bank news,

PNC

(PNC) - Get Report

,

First Tennessee

(FTN)

and

Bank of New York

(BK) - Get Report

all reported higher profits.

The positive earning news from the banks, coupled with a belief that that Federal Reserve is in no rush to raise interest rates, helped propel many financial stocks higher. In late trading, the Philadelphia KBW Bank Index was up 12 points, of 1.25%, to just over 1,000 -- an all-time high for the main banking index. Additionally, the AMEX Securities Broker Dealer Index was up 12 points, of 1.7%, to 734.

PNC, often rumored to be a potential buyout candidate, posted a modest 5% gain in profits, as it reported fewer bad loans and better numbers from its BlackRock asset management business. The bank earned $274 million, or 98 cents a share, compared to $262 million, or 92 cents a year ago. The bank's earnings came in a penny shy of the First Call estimate of 99 cents a share.

PNC said its fourth-quarter net was reduced by $28 million, or 10 cents a share, by a change in an accounting treatment.

First Tennessee, a Southeast regional lender, earned $117.6 million, or 90 cents a share, compared with $103.4 million, or 80 cents a share, in the year earlier period. The bank matched the First Call consensus estimate.

Bank of New York, one of the nation's biggest custodial and trade processing banks, said its fourth quarter profits rose, as it benefited from the stock trading revival and a decline in bad corporate loans. In the quarter, the bank earned $307 million, or 40 cents a share, compared with $100 million, or 14 cents a share, a year earlier.

On an operating basis, the nation's oldest bank earned 44 cents a share, which matched the analysts' consensus estimate.

As for J.P. Morgan, the fourth quarter continued the bank's strong rebound from the end of last year when its stock cratered around $15 a share and it was mired in controversy over its involvement in providing billions of dollars of questionable financing to

Enron

. J.P. Morgan shares closed trading on Tuesday at just over $39 a share.

The biggest turnaround in the quarter came in the company's investment bank, which earned $860 million in the fourth quarter, compared to earnings of $341 million last year. Fees from equity underwriting were $254 million, which the bank said was the highest amount in three years.

Operating revenue in the investment bank segment totaled $3.0 billion, down 8% from a year ago while expenses fell 19% over the same period.

The bank's venture capital group, J.P. Morgan Partners, which has been bleeding red ink for several years because of bad bets on the technology sector, finally made it back into the black. In the quarter, the group posted operating earnings of $22 million, compared to an operating loss of $100 million, a year ago.

Fourth-quarter earnings in its financial services division rose 23% to $560 million, driven by a 34% increase in home finance revenue. The segment's return on allocated capital for the quarter was 25% compared with 21% for the fourth quarter of 2002.

Overall operating expenses were $5.22 billion, down 5% from the fourth quarter of 2002, reflecting lower compensation costs resulting from lower severance and related costs and a lower level of bonuses. Commercial net charge-offs for the quarter were $8 million compared to $646 million for the fourth quarter of 2002.