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American Express (AXP) and other credit card stocks were among the winners of the financial sector following analyst upgrades.

American Express, Capital One Financial (COF) and Discover Financial (DFS)  traded higher after Bank of America/Merrill Lynch analysts upgraded each stock to buy from neutral with price targets of $44, $45 and $17, respectively.

The analysts argued that the recent pullback offers investors an opportunity to benefit from further expansion in the U.S. economy, accelerating earnings momentum and improving sentiment toward the credit card sector. The price targets imply between 15% to 25% upside potential, which the analysts said is based on mid-cycle valuation multiples to conservative normalized earnings-per-share estimates for each stock.

"The card stocks should benefit from strong earnings momentum once credit costs ease, in our view, setting the sector up for a positive revision cycle, as investors reflect reserve releases in forecasts as a practical matter," analyst Kenneth Bruce wrote in the research note.

American Express shares were lately up 2% to $38.96, Capital One gained 2.6% to $37.72, and Discover advanced 3.5% to $13.79.

Elsewhere, bank stocks were in focus as former Federal Reserve Chairman Paul Volcker was set to testify before the Senate Banking Committee later Tuesday. The topic of discussion will be the so-called "Volcker Rule," which aims to quash proprietary lending by banks.

 The Wall Street Journal noted statements and figures from Goldman Sachs (GS) that suggest proprietary trading accounts for less than 7% of the firm's annual revenue. Among other banks, Morgan Stanley (MS) sees 2% to 3% of revenue from that trading, the paper said.

Both JPMorgan Chase (JPM) and Bank of America (BAC) are estimated to see 1% or less of total revenue from proprietary trading, the Journal notes, while Citigroup (C) gets less than 2% of revenue from it.

All of the bank names were trading higher before Volcker's testimony. JPMorgan gained 2% to $40.42, Goldman Sachs was higher by 1.6% to $155.59, Bank of America rose 1.3% to $15.62, Citigroup added 1.2% to $3.38, and Morgan Stanley tacked on 0.7% to $27.76.

Meanwhile, online brokers were falling after Fidelity reduced its stock trading commission to a flat fee of $7.95, undercutting its rivals. Last month, rival Charles Schwab (SCHW) lowered its commission for investors who hold less than $1 million in household assets at Schwab or who traded fewer than 120 times per year to $8.95 per online trade in stocks or non-Schwab exchange traded plus charges for trades larger than 1000 shares, down from $12.95.

Following the news, TD Ameritrade (AMTD) lost 3.1% to $17.67, E*Trade Financial (ETFC) fell 1.9% to $1.56, and Charles Schwab was down 0.9% to $18.27.

Bank of New York Mellon (BK) also lost ground after it reached an agreement to acquire PNC's (PNC) Global Investment Servicing subsidiary for $2.1 billion.

The deal includes the purchase of $1.57 billion of stock and repayment of intercompany debt from PNC. BNY Mellon, in a statement Tuesday, said it plans to raise about $800 million in equity as part of the transaction. The all-cash deal, which will be accretive in the first year, is expected to close in the third quarte.

Bank of New York Mellon was down 1.5% to $29.13, while PNC shares slipped 0.3% to $55.66.

-- Written by Robert Holmes in Boston.