Shares of banks, lenders and other financial concerns rallied after strong earnings reports from Wall Street banks dispelled fears about global markets.

Morgan Stanley (MS) shares surged after the Wall Street bank posted surprisingly strong revenue growth in its trading, investment-banking and brokerage units.

Goldman Sachs (GS) rose after Morgan Stanley's rival posted earnings ahead of Wall Street targets, although its revenue growth in some business lines lagged that of Morgan Stanley. Still, Goldman's gains were enough to maintain its edge over Morgan Stanley as the largest Wall Street bank by market capitalization.

Fears about rising Treasury yields were diminished Tuesday, partly because the yields themselves retreated. The market's "fear index," the Chicago Board Options Exchange Volatility Index, which uses options prices to track volatility expectations, fell nearly 16% to just below 18, putting the index on pace for its sharpest daily drop since February.

"A lot of the interest-rate increases have been priced into the market," said Eric Marshall, president of Dallas mutual-fund manager Hodges Capital. "The Fed's been fairly transparent [about the path of rate increases]."

Nomura Holding America (NMR) and affiliates agreed to pay a $480 million penalty to resolve federal civil claims related to the sale and issuance of the residential mortgage-backed securities in the run-up to the financial crisis, the latest in a string of global banks to settle the long-running cases.

Shares of the world's largest money manager by assets, BlackRock (BLK), fell sharply, bringing losses on the company's shares to roughly 30% from the January peak, after it reported the first outflows from its funds in three years.

-Rob Curran, rob.curran@dowjones.com

(END) Dow Jones Newswires

October 16, 2018 16:32 ET (20:32 GMT)