(Bloomberg) -- PacWest Bancorp pared gains of as much as 30% on Monday to close the day more narrowly in the green, as the rally that had given the stock a record advance on Friday faded.

Shares closed higher by 3.7%, outperforming the KBW Regional Banking Index that fell by 2.8%. PacWest said Friday that its business remains “sound” and that it was cutting the quarterly dividend to one cent to accelerate capital build plans. Regional lending peers Western Alliance Bancorp and Zions Bancorp also eked out gains after paring earlier rallies.

PacWest’s two-day bounce follows a tumultuous week for regional lenders that ended with a sharp rally higher on Friday. 

“In the near-term, stress remains in the system, as evidenced by recent, negative stock price reactions among regional banks, with concern that weaker equity prices and wider credit spreads could lead to further deposit instability,” Goldman Sachs analyst Richard Ramsden wrote in a note.

Four regional banks have collapsed since turmoil started in early March, turning investor attention to jitters over unrealized losses on bond investments and deposit levels. Exposure to real estate lending has also been in focus.

The KBW Regional Banking Index dropped 8% last week, the worst weekly decline since mid-March, when the crisis started. But bank stocks bounced on Friday, ending the week on a high note as PacWest surged 82% for its best single-day advance on record. The stock fell 75% this year through last week.

For PacWest, short interest as a percentage of float had surged to nearly 19% in recent weeks, according to data from S3 Partners data.

“The potential for a meaningful dividend cut shouldn’t come as a surprise to investors,” Keefe, Bruyette & Woods analyst Christopher McGratty wrote, especially given the stock’s current valuation and that the firm is “in the midst of a strategy shift that prioritizes capital build.”

The S&P 500 financials index is on the verge of falling back below its 2007 peak. If it were to drop through that barrier now, it would be an ominous signal for the broader stock market, said hedge-fund manager Jim Roppel, founder of Roppel Capital Management. 

(Updates to add latest trading and Goldman Sachs analyst commentary.)

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