Goldman, Morgan Stanley power financials higher

SAN FRANCISCO (MarketWatch) � Shares of Goldman Sachs Group Inc. and Morgan Stanley drove financial stocks higher on Wednesday after Goldman�s earnings came in better than expected, offsetting losses in the trust-banking sector.

Goldman Sachs GS �shares closed up 6.8% after the investment bank reported a profit decline of 58%, less than analysts had expected.

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Europe's worsening debt crisis has forced some U.S. companies to reexamine relationships with European lenders and look to banks from other parts of the world, (Photo: Reuters)

For the fourth quarter, the firm�s investment-banking revenue skidded 43% from a year earlier to $857 million. On the trading front, fixed-income, currency and commodity revenue � once a reliable generator of profit � fell 17% at $1.36 billion. Read more about Goldman�s quarterly results.

Analysts polled by FactSet Research had expected the firm to earn $1.28 a share on revenue of $6.73 billion.

Morgan Stanley MS , which is scheduled to report Thursday morning, also rallied 6.8%. The bank is expected to post a fourth-quarter loss of 57 cents a share on revenue of $5.99 billion, according to a consensus survey by FactSet .

Bank of America BAC , another large bank on tap to report Thursday, advanced 4.9%. B. of A. is forecast to hand in fourth-quarter earnings of 22 cents a share and revenue of $23.74 billion, according to a FactSet survey.

Shares of State Street Corp. STT �slid 6.6% to rank as one of the biggest decliners in the S&P 500 Index SPX �after its fourth-quarter earnings left investors disappointed.

Bank of New York Mellon Corp. BK �and PNC Financial Services Group Inc. PNC �also reported lackluster results before the opening bell, sending those shares lower as well.

With Boston-based State Street in the lead, Bank of New York Mellon was the second biggest loser in the S&P 500�s financial sector and PNC took the third spot.

Still, financials were the best performers on the S&P 500 with the Financial Select Sector SPDR ETF XLF adding 1.5%.