By Aaron Kuriloff

Bank shares surged Monday, reflecting expectations that a victory Tuesday by Democratic presidential nominee Hillary Clinton would keep the Federal Reserve on track to raise interest rates.

The KBW Nasdaq Bank Index of large U.S. commercial lenders gained 2.8%, outpacing the 2.2% rise in the S&P 500.

Morgan Stanley climbed $1.22, or 3.7%, to $34, Citigroup Inc. added $1.65, or 3.4%, to $49.82, and Goldman Sachs Group Inc. rose $5.56, or 3.2%, to $181.48.

The rally got its impetus from the announcement on Sunday by Federal Bureau of Investigation Director James Comey that no prosecution of Mrs. Clinton was justified in the discovery of classified information on her private email server.

Many investors say a win for Mrs. Clinton would maintain relative calm in markets, leaving the Fed on track to raise rates at its next meeting in December. Higher rates are typically good for banks, boosting the gap between what lenders pay on deposits and make on loans.

Federal-funds futures showed a 76% chance of an interest-rate rise in December, up from 67% the previous session, according to CME Group.

A wave of selling swept the U.S. government bond market Monday, sending the yield on the 10-year Treasury note to 1.826% from 1.783% Friday. Yields rise as bond prices fall.

Yields dropped last week as investors sought relatively safe assets.

"If you have a known outcome, yields should go up slightly, and that's going to benefit the banks," said Michael Mattioli, portfolio manager at Manulife Asset Management.

--Min Zeng contributed to this article.

Write to Aaron Kuriloff at aaron.kuriloff@wsj.com

(END) Dow Jones Newswires

November 07, 2016 23:53 ET (04:53 GMT)

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