Updated from 1:33 p.m. EDT

Financial stocks rebounded Thursday, after two days of selloffs following renewed concerns over the impact of subprime mortgages on banks and the housing market.

Standard & Poor's on Tuesday warned it could cut ratings on securities backed by subprime mortgages, and Moody's followed that announcement by doing just that. Investment banks and real estate investment trusts that invested in or securitized subprime mortgages took a hit that rattled the markets.

By Thursday, however, investors fears about the potential wide reach of the subprime problem seemed to have subsided. While REITs dealing in the subprime space, including American Home Mortgage ( AHM), continued to lag, Wall Street banks such as Bear Stearns ( BSC), Goldman Sachs ( GS) and Lehman Brothers ( LEH) were returning to levels before the selloff began Tuesday.

Education lending company Sallie Mae ( SLM) also made a comeback. Shares lost 10% Wednesday after word investors in a $25 billion proposed buyout of the company could have cold feet. Congressional legislation that passed the House Wednesday would halve interest rates on student loans, leading investors in the J.C. Flowers & Co.-led Sallie Mae deal, one of the largest private buyouts ever, to express concerns. Sallie Mae brushed off the concerns, but the stock plummeted. It was on the rebound Thursday, closing up $1.55, or 3%, to $53.70.

FCStone Group ( FCSX) gained 7.1% after posing an earnings beat Thursday before the bell and announcing a stock split. The commodities risk management company nearly doubled income in the third quarter ended May 31 over the year-ago period, to $8.1 million from $4.1 million. It posted earnings per share of 43 cents, compared with 28 cents in the comparable quarter in 2006.

The company also said its board had approved a 3-for-2 stock split. Shareholders of record on Sept. 17 will receive an additional share for every two shares held. FCStone shares rose $3.97 to $59.66.

Assured Guaranty ( AGO) edged up 3.1% after Moody's upped its insurance financial health rating to the highest, AAA, from AA1. Standard & Poor's and Fitch Ratings already had AAA ratings for the insurance company.

"Receiving triple-A ratings for Assured Guaranty Corp. from all three rating agencies has been a key strategic goal for Assured Guaranty since our initial public offering and is critical to our continued market and earnings expansion," the company said in a statement. Shares closed up 85 cents to $28.73.

Ratings initiations boosted two financial stocks. Credit card provider Discover Financial Services ( DFS) rose 4.5% after Lehman Brothers initiated coverage with an overweight rating. Shares closed up $1.13 to $26.34. TradeStation Group ( TRAD) advanced 2.4% to $11.95 after Friedman Billings opened coverage with an outperform rating.

On the flip side, shares of PFF Bancorp ( PFB) tumbled 18.6% after the operator of PFF Bank & Trust in Southern California said it expected to record a loss of $20 million to $21 million in the second quarter, due to credit weakness in the residential construction and land segment of its loan portfolio. The loss is expected to impact earnings per share by 48 cents to 51 cents. Shares lost $4.78 to $20.97.

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