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Shares in US banks rallied on Thursday, and were poised to snap a painful, three-week decline, as the reflation trade once again picked up momentum.

The S&P 500 banks index, which includes the biggest American lenders, jumped 1.2 per cent on Thursday, and has climbed by 1.8 per cent since the end of last week. If the gauge holds its gains through the end of this week, it would mark a recovery from the past three weeks when it shed a total of 6.7 per cent.

Lenders have benefited from a shift by Wall Street back into sectors that are thought to gain from higher levels of economic growth, inflation and interest rates. The so-called Trump-trade had lost momentum over the past few weeks as expectations that Congress will be able to pass pro-business measures cooled and the economic outlook dimmed slightly.

But investors have once again turned more bullish on risk assets, helped this week by a duo of Federal Reserve officials who suggested the central bank should raise rates three more times this year. If the Fed lifts rates more quickly than anticipated — policymakers projected two more rate rises this year when they increased rates earlier this month — it could be a boon to banks that have been hoping for higher rates.

Despite the recent uptick in sentiment, however, US banks are poised to post their worst month since last September. The weak performance has pushed their post-election rise to 26.2 per cent, from as much as 34.4 per cent on March 1.

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