Shares of UK domestic lenders were making gains on Wednesday after upbeat comments from analysts at Morgan Stanley in a note issued after the US bank's conference on the financial sector last week.Morgan Stanley named British banks Barclays and Lloyds among its most preferred stocks in the European banking and financial sector. Both were rated 'overweight'.However, global banks Standard Chartered and HSBC were among the least preferred and were rated 'underweight'. RBS was labelled 'equal weight'.Morgan Stanley, which said companies at the conference were "cautiously optimistic" about current conditions, lifted target prices for UK banks by 5-10%.A "nascent" Eurozone recovery, the impact of the European Central Bank's quantitative easing (QE) programme, restructuring and growing regulatory clarity were cited as reasons for the more bullish outlook."QE boosts asset/wealth managers the most but may also help banks buck the five-year trend of falling fixed income, currencies and commodities income."Many banks pointed to their corporate and institutional divisions, seeing a strong Q1 from trading income," Morgan Stanley explained.Banks also apparently noted "green shoots" in lending volumes in Italy, Spain and France and the potential for lower bad debts.However, investors number-one concern about the banking sector was still regulatory uncertainty, and dividend payments will be a sign of banks' "rehabilitation".UK-listed banking stocks were rising an average 1.2% in afternoon trade, with Barclays and Lloyds up 2.9% and 1.4% respectively.