U.S. bank stocks, which had their best week on record last week, powered higher amid optimism they can soon return to profitability, only to give back their gains after American Express Co said more credit card customers are missing payments.

The KBW Bank Index <.BKX> of large lenders, which rose 37.4 percent last week, gave back all of their early 8.1 percent gain, and finished down 0.2 percent.

American Express said its net write-off rate rose to 8.7 percent as of the end of February from 8.3 percent a month earlier, while its percentage of loans at least 30 days past due rose to 5.3 percent from 5.1 percent.

The credit card and travel services company has long focused on wealthier clients, but in recent years reached out to less affluent borrowers. This strategy paid off earlier this decade as credit availability expanded, but has since resulted in growing credit losses.

American Express' report neutralized the positive outlook provided earlier on Monday by British bank Barclays Plc , which said it was having a strong start to 2009. That echoed comments last week by the chief executives of Bank of America Corp , JPMorgan Chase & Co and Citigroup Inc that they had been profitable in January and February.

Meanwhile, the Financial Accounting Standards Board, which sets U.S. accounting rules, proposed to give companies more freedom to exercise their own judgment in valuing assets.

Critics of the current fair-value rule say it can lead to asset writedowns to artificial fire-sale levels, overwhelming efforts to reduce costs and better manage credit losses.

American Express shares fell 3.3 percent to $12.66. Among other financial companies, Bank of America rose 7.3 percent to $6.18, JPMorgan fell 2.8 percent to $23.09 and Citigroup rose 30.9 percent to $2.33.

There is a general picture emerging that at least from an operating standpoint, banks are enjoying a better period than they have had for a couple of years, said Marshall Front, chairman of Front Barnett Associates LLC in Chicago. This does not address the issue of further writedowns that are inevitable in the face of continued falling home prices, commercial real estate deterioration and adverse trends in credit cards.

The KBW index is 71.2 percent below where it closed at the end of 2007. Its 37.4 percent gain last week was the biggest in its history, Barclays Capital analyst Jason Goldberg said.

MELTDOWN FEAR EASES

Bank stocks also got some support after finance chiefs from the Group of 20 nations over the weekend pledged to boost efforts to help economies and Federal Reserve Chairman Ben Bernanke said the U.S. economy will probably emerge from recession this year.

Maybe investors are taking that meltdown scenario off the table, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

FASB Chairman Robert Herz said at a board meeting on Monday he hopes the new accounting guidance will let companies value assets as if they were sold in an orderly market.

Some investors have expressed concern that easing existing rules could result in greater balance sheet manipulation. Yet board members said market conditions forced them to consider public policy in issuing accounting guidance.

Banks have blamed mark-to-market accounting for part of the declines in their shares.

It has driven banks to write down assets based on scraps of information, Front said. I haven't spoken to one banker, publicly or privately, who wasn't strongly in favor of the elimination, at least temporarily, of what they call an 'abomination.'

(Reporting by Jonathan Stempel; Additional reporting by Juan Lagorio and Ellis Mnyandu in New York and Karey Wutkowski in Washington, D.C.; editing by Gerald E. McCormick and Andre Grenon)

Investment Jpmorgan chase Citigroup Bank of america