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) 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) 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) closed down 6 cents to $84.54. Insurer Conseco ( CNO) was up 36 cents to $20.87. Pawnshop operator Cash America International ( CSH) was up $1.04 to $39.97.

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