HSBC and Standard Chartered should benefit as U.S. FederalReserve eases its programme of asset purchases, pushing up dollar rates andreducing the pressure on banks' Asian margins, analysts at Citi write.
They upgrade HSBC to 'buy' from 'neutral', helping its shares gain 2.6percent.
"The shares have an attractive dividend yield, the balance sheet has beenstrengthened, and the stock looks attractive, especially for income investors."
Citing the more attractive valuations after recent share price weakness,Citi also reiterates a 'buy' on Standard Chartered, which gains 2.8 percent.
HSBC and Standard Chartered have been the worst performing British banksover the past month, shedding 10 and 11 percent, respectively.
David Lis, head of equities at Aviva Investors, also says his firm has nowchanged its view on the UK banking sector from "negative" to "positive", arguingthat any eventual rise in rates could boost their net interest margins.
"As the UK domestic banks work through the legacy issues from the 2008financial crisis, we are beginning to find the sector more appealing as aninvestment proposition," he writes in a note.
"In addition, the sector is an obvious beneficiary of any upward move ininterest rates as typically banks see an expansion of their net interest marginin this situation. Barclays and Lloyds are our major UK bankholdings," adds Lis.
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