Updated from 1:31 p.m. EDT

Financial stocks climbed the backs of the major indices as the Federal Reserve pumped liquidity into the market and names like Blackstone ( BX) and CIT Group ( CIT) kept things humming along.

Blackstone closed up 1.7% to $25.71 after the newly public asset manager said its second-quarter income more than tripled to $774.4 million on sharply higher revenue. CIT, a New York-based lender, jumped on a CIBC World Markets upgrade to sector outperform. The analyst said, among other things, that most of the company's risks are already baked into its share price.

CIT shares were up $1.82, or 5.4%, to $35.86 in support of the NYSE Financial Sector Index, which added 0.6% to 8880.46. The KBW Bank Index closed down 1.1%.

Fortress Investment Group ( FIG) ran up 7.7% ahead of tomorrow's earnings report.

Knight Capital ( NITE) traded up earlier in the day but closed down 2.1% after the New Jersey broker said Goldman Sachs ( GS) agreed to buy a minority stake in its indirectly held subsidiary Direct Edge ECN. Financial terms weren't disclosed. The purchase, along with a planned ownership increase by Citadel Derivatives Group, will cut Knight's holdings in the trading platform to less than 50%.

NovaStar Financial ( NFI), meanwhile, added 8.7% after CEO Scott Hartman said he expects that the subprime-mortgage lender will "continue in the normal course of business" despite its ongoing struggles, including a big second-quarter loss that it just reported last week. Shares closed at $6.77.

But fellow subprime lender Accredited Home Lenders ( LEND) lost virtually all of its spectacular Friday gains after Lone Star, which just received regulatory approval to buy out Accredited, said it doesn't expect to accept any tendered shares at the end of the offering period this week "in light of the drastic deterioration in the financial and operational condition of the company, among other things." Accredited filed a lawsuit in an attempt to force Lone Star to close the $400 million deal. Accredited shares slid $3.08 to $5.82.

Fellow lender Thornburg Mortgage ( TMA) fell 20.9% in heavy trading, and Impac Mortgage ( IMH) was off 14.1% on a regulatory filing it made after Friday's close that said it is unable to file its second-quarter results on time. The Irvine, Calif., firm also said it swung to a second-quarter loss of $152.5 million vs. $26.4 million earnings last year.

Also slipping were Fannie Mae ( FNM) and Freddie Mac ( FRE) after the companies' regulator, the Office of Federal Housing Enterprise Oversight, denied Fannie Mae's request to increase investment-portfolio caps that the regulator established last year. OFHEO added, however, that it will "continue to reassess that position, especially in the affordable-housing area." Fannie Mae shares lost 3.5% to $64.12 as Freddie Mac shed 0.7% to $61.52.

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