As the major equity markets are starting to build up to 10-month highs, some have even surpassed them, and certain ETFs are reflecting the success. Billy Fisher for Investopedia noted some of the top ETFs, and we’ve thrown in a few of the ones we’ve noticed, as well.

Sizable gains, a payback to the government and better-than-anticipated earnings are signaling a bottom may have been touched upon within the financial sector. There’s still a need for caution, though: financial ETFs have gained more than 100% off the March 9 market low, but the Federal Deposit Insurance Corporation (FDIC) reported that banks lost $3.7 billion in the second quarter in bad loans made to homebuilders, commercial real estate developers and small- and mid-size businesses,

• PowerShares FTSE RAFI Financials (PRFF): up 60% in the last three months

It’s not just big banks that have been a part of the rally. Regional banks have participated, too. IAT is up 16% for the past four weeks, but tread lightly- Rochadale Securities analyst Richard Bove said that an additional 150-200 banks could go under during the current banking crisis.

• iShares Dow Jones U.S. Regional Banks (IAT): up 12.9% in the last three months

VNQ had fallen 40% last year, but has recovered around 20%. Companies in this space will soon be facing debt payments resetting at higher rates, but it appears that most of the damage has already been taken into account by the market.

• Vanguard REIT Index (VNQ): up 22.5% in the last three months

The insurance sector is showing some signs of recovery. Layoffs within the sector are slowing down. In August, 8,000 layoffs are predicted – the smallest loss within the sector since July 2008, reports Insurance Working News.

• SPDR KBW Insurance ETF (KIE): up 27% in the last three months

Turkey’s market index has been driven up by the help of the banking sector, which make up around 40% of the market. Bank earnings have been bolstered by a series of rate cuts that has reduced interest on customers’ deposits as lending rates remain high. The Turkish economy shrank 13.8% in the first quarter year-over-year, as tax revenue receded because of a 23% fall in industrial production and rising unemployment.

• iShares MSCI Turkey (TUR): up 40% in the last three months

For more stories about banks, REITs and Turkey, visit the financial, Turkey and REITs categories.

In an effort to keep up with the competition, PowerShares announced late last week that they are cutting expense ratios on 11 ETFs that use Research Affiliates’ fundamental indexing approach, reports Index Universe.

The ETFs now have expense ratios capped at 0.60%, according to a company spokesperson. Those fees will be reduced to a uniform 0.39% on Nov. 1. Several other ETF providers have made similar cuts to their expense ratios this year, including Vanguard Group and XShares.

As consolidation becomes evident in the ETF industry, the pressure is on for smaller providers. A general rule of thumb in the industry is that for an ETF to break even, it needs to have at least $100 million in assets; some say it’s closer to $200 million, if marketing and operational costs are factored in.

The competition is great for investors, as they can expect the best products for the best prices.

PowerShares has a family of 140 funds and $12.21 billion in assets. The fundamental-weighted ETFs track indexes that use four measures to rank a company’s size: book value, cash flow, sales and dividends.

The 11 funds affected are:

• PowerShares FTSE RAFI US 1000 Portfolio (PRF)
• PowerShares FTSE RAFI US 1500 Small-Mid Portfolio (PRFZ)
• PowerShares FTSE RAFI Basic Materials Sector Portfolio (PRFM)
  
• PowerShares FTSE RAFI Consumer Goods Sector Portfolio (PRFG)
  
• PowerShares FTSE RAFI Consumer services Sector Portfolio (PRFS)
• PowerShares FTSE RAFI Energy Sector Portfolio (PRFE)
• PowerShares FTSE RAFI Financials Sector Portfolio (PRFF)
• PowerShares FTSE RAFI Health Care Sector Portfolio (PRFH)
  
• PowerShares FTSE RAFI Industrials Sector Portfolio (PRFN)
  
• PowerShares FTSE RAFI Telecom & Technology Sector Portfolio (PRFQ)
  
• PowerShares FTSE RAFI Utilities Sector Portfolio (PRFU)

He said that while the inflation outlook is uncertain, the recent decline in commodity prices and the stabilization of the U.S. dollar are encouraging signs, report Mark Felsenthal and Alister Bull for Reuters. If this sticks, he says, inflation should be moderate both this year and next.

All hints suggest that Bernanke will keep interest rates steady for the time being.

Oil is down $3 so far today, thanks to a stronger dollar and profit taking after Thursday’s jump, reports Bate Felix for Reuters.

Financials also found themselves on surer footing following the news that Lehman Brothers may have attracted a major investor, according to Ellis Mnyandu for Reuters. Warren Buffett also spoke on television that he has no bets against the U.S. dollar, and he also expressed confidence that the government would take steps to support Fannie Mae and Freddie Mac.

Among the ETF leaders in early trading include:

• PowerShares FTSE Rafi Financial (PRFF), down 31.1% year-to-date
• iShares Dow Jones U.S. Broker Dealer (IAI), down 37.7% year-to-date
• Rydex S&P Equal Weight Financial (RYF), down 27.6% year-to-date
• Financial Select Sector SPDR (XLF), down 29.7% year-to-date

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

The news raised hopes that the wounds of the credit crisis might finally be cauterizing. With Bank of America’s numbers, that means four of the country’s five largest banks have reported earnings that have beaten expectations, reports Joe Bel Bruno for the Associated Press. Bank of America (BAC) said its profit fell 41%, mostly because mortgage-related losses offset by businesses in other areas of the bank.

Other financial sector earnings expected this week include:

• American Express (AXP): Today, after market close
• Wachovia (WB): July 22
• SunTrust (STI): July 22
• Washington Mutual (WM): July 22
• Ameriprise Financial (AMP): July 23

On Friday, options trading in the KBW Regional Banking (KRE) picked up, suggesting that more pain is ahead for the sector, reports Doris Frankel for Reuters. About 187,000 puts and 7,702 calls changed hands, 50 times the normal volume.

Puts are a way to protect an existing stock position, or to bet on weakness. It gives an investor the right to sell at a given price and time. A call, on the other hand, is a right to buy the stock.

Among the ETFs trading higher this morning include:

• Financial Select Sector SPDR (XLF): down 28.7% year-to-date; Bank of America is 7.8%
• iShares Dow Jones US Financial Services (IYG): down 28.6% year-to-date; Bank of America is 8.8%
• Vanguard Financials (VFH): down 24.9% year-to-date; Bank of America is 7%
• PowerShares FTSE RAFI Financials (PRFF): down 28.4% year-to-date; Bank of America is 7.1%