Bank of America Corp and Citigroup Inc shares have roughly tripled from the multi-decade lows of less than a month ago and powered higher on Wednesday on optimism government efforts to stimulate lending might boost stocks after punishing recent declines.

Bank of America shares rose above $7 for the first time since February 9, while Citigroup rose above $3 for the first time in a month. The largest and third-largest U.S. banks are both in the Dow Jones Industrial average <.DJI>.

In late afternoon trading, Bank of America shares were up 92 cents, or 14.7 percent, at $7.19 each, while Citigroup was up 50 cents, or 19.9 percent, at $3.01. Citigroup shares bottomed at 97 cents on March 5, and Bank of America at $2.53 on February 20.

Other bank shares soared, with the KBW Bank Index <.BKX> rising as much as 10.8 percent to its highest in more than a month after a surprise U.S. Federal Reserve move to buy up to $300 billion of government debt and more mortgage-related debt in a bid to open up credit markets. This could make it easier for consumers and businesses to borrow, potentially spurring greater business activity and earnings for banks.

By expanding purchases to other asset classes, the Fed is trying to take pressure off the values of assets that banks hold on their balance sheet, particularly in the housing sector, said Mark Freeman, senior vice president at Westwood Management Corp in Dallas, which invests $7.5 billion. Banks are hesitant to lend because from a credit standpoint, their balance sheets are restrained.

UPSWING

Bank shares were already on the upswing after the chief executives of Bank of America, Citigroup and JPMorgan Chase & Co -- Kenneth Lewis, Vikram Pandit and Jamie Dimon -- said last week their respective banks were profitable in January and February.

Bank of America and Citigroup each got federal bailouts that limited losses on troubled assets and split $90 billion of capital from the Treasury Department's Troubled Asset Relief Program (TARP). JPMorgan took $25 billion from TARP.

Lewis added in an interview published on Wednesday in the Charlotte Observer that Bank of America might be able to repay its TARP money late this year.

Meanwhile, the Financial Accounting Standards Board issued proposals on Wednesday to help companies apply so-called mark- to-market accounting rules. Critics of these rules say they have convulsed banks by forcing writedowns of assets to artificially distressed levels, depleting capital.

Some of the accounting uncertainty may start to be lifted and that could alleviate some concerns with regard to capital adequacy, said Blake Howells, director of equity research, Becker Capital Management in Portland, Oregon.

MORTGAGE STABILITY SOUGHT

In the newspaper interview, Lewis also said Bank of America's January 1 acquisition of Merrill Lynch & Co will be a long-term success. Lewis said the bank will achieve 45 percent of its expected merger savings this year and that one-fourth of an expected 35,000 job cuts have been made.

Bank of America had its first quarterly loss in 17 years in the October-to-December period and has slashed its quarterly dividend to a penny per share. Citigroup has lost $37.5 billion over the last five quarters and has eliminated its dividend.

At the core of this problem remains the housing market, the liabilities the banks have with mortgages and the ability to stabilize prices, said Rick Meckler, president of LibertyView Capital Management in New York. Like a lot of people, I'm open to creative ideas to help stabilize (it).

Despite the recent gains, longer-term investors in Citigroup and Bank of America still have a long way to be made whole. Citigroup traded at $56.66 as recently as December 2006, while Bank of America hit $55.08 a month earlier.

(Additional reporting by Elinor Comlay and Emily Chasan; editing by Dave Zimmerman and Andre Grenon)

Vikram pandit Investment Citigroup Bank of america