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Write-downs and losses on over-leveraged bets may be over for the largest U.S. banks, Goldman Sachs said Thursday, upgrading its rating on large bank stocks to "neutral" from "cautious."

After about $100 billion in capital raises prompted by the government stress tests of the 19 largest U.S. banks, Goldman said large banks look like more attractive investments after the new capital reduced their leverage levels.

Recent improvement in the credit markets may also signal that write-downs are nearing an end, the firm said, and profits from mortgage activity and capital markets will help fund banks' loan loss reserves.

Goldman also upgraded to attractive its view of the trust banks sector, and raised its rating on the credit card sector to neutral.

However, the firm kept a cautious rating on the regional banking sector, saying small banks are behind the capital-raising trend started by the larger banks following the stress test, and that they have a greater exposure to the potential for growing weakness in commercial loans than the large banks. The firm had "sell" ratings on about half of the regional banks it covers.

Large bank shares rose slightly early Thursday, with the exception of Regions Financial Corp. (RF), which declined as much as 20% following its $1.85 billion capital raise Wednesday.

Regional bank shares, however, declined in recent trading, with Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN) and Zions Bancorp (ZION) all down more than 7% each.

The upgrade of the large bank sector follows Goldman's upgrade of Bank of America Corp. (BAC) on Monday on increased confidence that banks can earn their way out of credit losses. Goldman has been among the leading proponents of the "green shoots" theory driving the markets higher in recent weeks - the firm's economists see signs of a potential inflection point in several economic indicators, including jobless claims, retail sales, industrial production and housing prices.

However, Goldman said it still wasn't ready to put an "attractive" rating on large banks, because of the rising level of non-performing assets on bank balance sheets. The firm said large banks' non-performing assets rose by 5% during the first quarter.

"This is as high as we have ever seen, even comparing this cycle to prior regional home price depressions in the US," the Goldman analysts wrote. "As a result, we think earnings will remain weak this year, next year and potentially even in 2011 as banks work through this credit deterioration."

As for the trust banks sector, which includes Bank of New York Mellon Corp. (BK), Northern Trust Corp. (NTRS), and State Street Corp. (STT), Goldman believes revenue declines may have bottomed last quarter as the stock market gained and securities lending and currency trading stabilized.

In the credit card sector, which includes Capital One Financial Corp. (COF), Discover Financial Services (DFS) and American Express Corp. (AXP), Goldman says that an improvement in seasonal delinquency trends will give the stocks relief from the pressures of rising unemployment and changes to federal laws regulating the credit card industry.

Shares of the trust banks gained in recent trading, with State Street up the most at $42.60, or a 2.9% gain. Shares of credit card companies fell or traded sideways, with Discover Financial showing the largest decline, trading at $8.40, or down 3.2%.

-By Ed Welsch, Dow Jones Newswires; 201-938-5244; edward.welsch@dowjones.com