Exchange traded funds indexed to the U.S. financial sector led the charge in stocks Thursday as the Dow soared more than 500 points in a powerful snapback rally.

Equity ETFs bounced amid talk of a short-sale ban in Europe as officials try to roll back the spreading credit crisis. [Stocks Up; Treasury ETFs Fall After Auction]

Financial Select Sector SPDR Fund (NYSEArca: XLF) climbed 7.5% heading into Thursday’s closing bell. Bank of America (NYSE: BAC) shares were active again — the stock added 9% following its recent vicious slide. [Stock ETFs in ‘Orderly Crash’]

Investors are worried about U.S. banks’ exposure to the debt turmoil in Europe. Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and Bank of America  all have exposure to several of the European countries mired in debt. For instance, Citigroup is the U.S.’s third largest bank, and recently reported total exposure of $31.7 billion to Greece, Portugal, Ireland, Italy and Spain, reports Alexander Schachtel at Wall Street Cheat Sheet.

“Citi currently believes that the risk of loss associated with these exposures is materially lower than the exposure levels,” the bank said. “Citigroup continues to actively monitor its exposures to these, as well as other countries.” [Financial ETFs Higher on Debt Talks, Wells Fargo.]

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