Updated from 2:41 p.m. EDT

Financial stocks were red-hot Friday, propelled by the soaring broad market and sector-specific good news.

Nymex ( NMX) was one of the biggest winners, jumping 8% earlier in the day after Bloomberg reported that it's exploring a possible sale to another exchange that could fetch $155 a share, or $14.3 billion. The commodities exchange is in talks with NYSE Euronext ( NYX), Chicago Mercantile Exchange ( CME) and Deutsche Boerse, according to two people involved.

But the stock's gain was tempered after a former Nymex board member said he was unaware of any merger discussions. Nymex closed up 1.7% at $142.12. NYSE closed down 1% while CME gained that same amount.

Also climbing on M&A news were the Bank of New York ( BK) and Mellon Financial ( MEL), whose December stock-swap merger proposal was cleared by both the Federal Reserve and the Justice Department. The banks said they expect to close the deal on or about July 1. Shares of the banks closed up 1.2% and 1.3%, respectively.

Mortgage lender Freddie Mac ( FRE) was upgraded to outperform at Friedman Billings, pushing shares slightly up earlier in the day; they closed down 24 cents at $65. Wachovia raised Bear Stearns' ( BSC) 2007 earnings estimate by a dime to $14.01, citing a record backlog and favorable broad-market trends. Shares traded actively and closed up 49 cents to $150.09 following somewhat wobbly trading.

Credit-card company MasterCard ( MA) gained 4.9% to $157.65 after detailing a previously announced plan for converting Class B shares into Class A shares on an accelerated basis. And Ladenburg Thalmann Financial Services ( LTS) was one of the sector's biggest percentage gainers Friday, surging 13.9% to $2.71 after announcing it has been preliminarily added to the Russell 3000 Index.

Among very few financial losers Friday was asset manager Fortress Investment Group ( FIG), which slid 6.5% after agreeing to take out casino operator Penn National Gaming ( PENN) for $8.9 billion. Fortress shares lost $1.64 to $23.47 as Penn surged 21.5% to $62.12.

Elsewhere, Doral Financial ( DRL) tumbled 11.1% to $1.60 after the Puerto Rico lender swung to a first-quarter loss of $37.3 million, or 42 cents a share. Stifel Nicolaus slapped a sell rating on Progressive ( PGR). Shares of the insurer were off 3.6% to $23.80.

More broadly, however, both the NYSE Financial Sector Index and the KBW Bank Index climbed 0.7% and 0.5%, respectively.

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