U.S. banks have been able to raise many billions of dollars in the past few weeks by selling shares to investors, but the jury is still out on whether this is the savviest of smart money -- or just plain dumb.

For the past year, banks were hard pressed to squeeze even a dime out of investors amid worries of mounting credit losses, failures and even nationalization.

Fast forward to this year, when U.S. financial services companies sold more than $34 billion of common stock, according to Thomson Reuters data, including $26.2 billion in the 13 days since regulators announced their stress-test results for the largest banks.

Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz), Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz) are among more than 30 financial institutions that have tapped equity markets with offerings that were all well oversubscribed. Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), the largest consumer bank and the institution with the biggest stress-test capital shortfall, on Tuesday raised $13.5 billion.

Some investors, though, question why everyone has fallen back in love with the banks when the markets and the economy are still in flux.

I don't understand it. We are in a deleveraging market and they have declining margins and bloated assets, said Matt Paschke, portfolio manager at Leuthold Weeden Capital Management, which oversees $3.2 billion in assets. It's not an area we are interested in from a risk-reward perspective. There is still risk in this market.

Leuthold is home to the Grizzly Short Fund, which returned 73.69 percent last year, but it does also take long positions, and some other long-short funds have similar doubts about the prudence of snapping up the bank share offers.

I think, by and large, the money that's being put now is premature -- meaning we have a number of years of pretty serious losses yet to come in the banking sector, said Whitney Tilson, founder of hedge fund T2 Partners LLC.

Indeed, Tilson warns that the easy money from the bank rally may have already been made.

Some of that was earned by T2 itself, which, for example, sold Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz) on the way down, then bought the stock near the lows and made money on the way up.

Wells was a dream. We didn't just buy it low, we shorted it at $30 all the way down and then flipped around and then went long it at $10. That is the dream. That almost never happens.

T2 booked some profits in Wells shares recently in the mid 20s. They closed at $24.46 on Wednesday.

So who is buying all these new shares?

Some of the demand is from hedge funds caught short, using these deals to cover their shorts, said Mark Fitzgibbon, research head at investment bank Sandler O'Neill + Partners. Some of it is institutional money managers who feel like they missed the bottom and are chasing these stocks now.

Several factors -- the barrage of federal bank rescue plans and easing worries of failure or government takeovers -- combined to lift bank shares off more than 16-year lows on March 6. Since then, the KBW Banks Index .BKX has nearly doubled.

The days of nationalization fears, the days of depositors lining up outside of banks, I think those days are behind us, said Jason Polun, who analyzes U.S. large-cap bank stocks at Baltimore mutual fund giant T. Rowe Price (TROW.O: Quote, Profile, Research, Stock Buzz), which manages more than $269 billion in assets.

Investor appetite for bank stocks is an important barometer for the health of the markets and for the broader economy. Federal Reserve Chairman Ben Bernanke in a 60 Minutes interview in March said one of the first signs of imminent recovery will be when a big bank raises private capital.

Equally important, analysts and bankers said money managers may not love bank stocks but feel pressure to keep pace with rivals by rebalancing portfolios that had shed financial stocks.

A number of the large mutual funds were underweight financials because (the stocks) were underperforming, but now that they are performing well again, these funds have to recalibrate the weightings or they will underperform the overall market, said Joe Castle, Barclays Capital's Americas equities syndicate head.

Sentiment among fund managers around the world has turned bullish since February, when Wall Street's implosion was still fresh and the specter of government takeovers haunted investors. Investor pessimism on bank stocks started to recede in April, according to Banc of America Securities-Merrill Lynch.

The net percentage of respondents underweight banks swung significantly in April to a net 26 percent from a whopping 48 percent in March, the Banc of America-Merrill survey found.

Apocalyptic bearishness of a mere three months ago has been replaced by fairly typical early-cyclical sentiment readings, said Michael Hartnett, Banc of America-Merrill's international investment strategist,

Skeptics say there are many reasons to be cautious about diving back into the banks.

Investment firms and sovereign funds from all over the world were burned badly in 2007 when they injected capital into banks like Citi, Merrill Lynch and Washington Mutual through private placements and public stock offerings. Rather than catching the bottom, the credit crunch only worsened and their stakes plunge in value.

Yet analysts and investors today say the U.S. government helped put a floor under the financial sector with its wide range of bailout moves and firm commitment to reviving markets. Together, these programs and the piles of cash sitting on the sidelines combined to spark the rally.

The totality of the administration's programs -- the stress tests, PPIP, TALF -- created a fire where you had a lot of dry tinder, said Orin Kramer, chairman of the New Jersey Investment Council, manager of a small financial services hedge fund.

Fund managers, who are judged on their relative performance, feel pressure to own bank shares now that they are on the rise, the veteran investor said. The worst thing for a money manager isn't losing money, he said, it's underperforming.

The bold move, then, is bucking the trend and steering clear of banks. T2's Tilson, for example, said the so-called government put option that has cushioned selling pressure on banks will eventually wear off.

We are maintaining or increasing our short exposure to a number of financials -- and we've been cutting our long exposure to the ones that we think are winners, like Wells Fargo and American Express (AXP.N: Quote, Profile, Research, Stock Buzz). We think their stocks may have gotten a little ahead of themselves.

(Reporting by Joseph A. Giannone and Jennifer Ablan; Additional reporting by Phil Wahba; Editing by Gary Hill)

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