By Max Colchester, Mike Bird and Julia-Ambra Verlaine

Bank stocks continued to run on the back of Donald Trump's presidential victory and the prospect this would herald a watering down of incoming regulation and an increase in interest rates.

U.S. banks stocks rose again Thursday, building on strong gains Wednesday. In early trading, the KBW Nasdaq Index gained about 2%. The previous day the index jumped by 5%, its biggest daily move since the year's start.

Among big U.S. banks, Wells Fargo & Co. was the best performer, up more than 4%. J.P. Morgan Chase & Co. and Bank of America Corp. both gained more than 3%.

Ashappened Wednesday, Citigroup Inc. rose, but lagged the pack. This reflects that the bank is one of the more internationally oriented firms and also that it has a large business in Mexico and is counting on that country for growth. That is seen as a potential negative given Mr. Trump's comments about the country and stated desire to build a wall on the Mexican border to prevent illegal immigration.

Bank shares rose as the yield on the 10-year U.S. Treasury continued to climb to around 2.1% Any move higher in interest rates is potentially good for banks as it can aid their profits.

U.S. bank stocks weren't the only ones on the move. Shares in beleaguered European investment banks shot up as well. Deutsche Bank AG rose as much as 8% at one point before falling back for a gain of just shy of 5%.

As in the U.S., investors in European banks were looking forward to the possibility of regulatory and economic conditions shifting in banks' favor.

European banks have been punished by a combination of low interest rates and slack European economic growth. Another major worry on the horizon: the implementation of tough new global regulations that would force them to recalculate the riskiness of their assets and potentially thicken their capital cushions.

Some bankers were surprised by the sharp market reaction. "Maybe it is that the market is completely crazy," said Intesa Sanpaolo SpA Chief Executive Carlo Messina, as the Italian bank's shares climbed 2%. He said the market's view was based on little factual evidence of any upcoming changes to regulations.

Europe's banks, backed by local politicians, have complained that new rules, dubbed "Basel IV," would unfairly penalize them compared with U.S. peers. One of Basel IV's key advocates, Federal Reserve Governor Daniel Tarullo, faces an uncertain future under Mr. Trump's presidency, analysts say.

Investorsare betting that to quickly push through the reforms, Mr. Tarullo will have to cede to European demands to dilute the proposals. This would be a boon to lenders with large investment-banking operations such as Credit Suisse Group AG, UBS Group AG and Barclays PLC, whose shares also rallied Thursday.

The new regulatory standards -- designed to shore up the sector and reduce the risk of a financial crisis -- are due to be finalized by the end of the year but could take years to implement, giving European officials scope to push back. EU officials argue that the U.S. has outsize influence when it comes to shaping rules at the Basel Committee on Banking Supervision, which sets global rules for banks. "The Basel based institution suffers from a lack of democratic control," said Sven Giegold, an influential German Green Party EU lawmaker.

The Euro Stoxx Banks index climbed 3.5% in London. UBS and Credit Suisse shares rose more than 9% and7.5%, respectively. The rise followed an 8.8% surge in Japanese bank shares, leaving them above their pre-U.S.-election levels.

--Jenny Strasburg contributed to this article.

Write to Max Colchester at max.colchester@wsj.com and Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

November 10, 2016 12:03 ET (17:03 GMT)

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