NEW YORK (MarketWatch) -- U.S. financial stocks rose in morning trade, led by gains in select retail investment firms as analysts grew more sanguine about their outlook. T. Rowe Price and Charles Schwab led gainers following an upgrade of both at Deutsche Bank.

On the downside, Citigroup shares fell after news that Abu Dhabi's sovereign wealth fund wants out of a commitment to invest more than $7 billion in the firm.

The Financial Select Sector SPDR , which tracks the financial stocks in the S&P 500, added 0.7%.

Shares of Citigroup faced a new challenge Wednesday. Abu Dhabi Investment Authority, the Middle East's largest sovereign wealth fund, is demanding that Citigroup Inc. scrap a deal that would see the fund make a heavy loss on a $7.5 billion investment in the bank.

The fund, controlled by the oil-rich rulers of the Persian Gulf city-state of Abu Dhabi, is seeking more than $4 billion in damages from Citi if the deal to invest in the bank is upheld for what it alleges were "fraudulent misrepresentations" of the original agreement, according to the lender.

The dispute with Abu Dhabi follows Kuwait's decision to sell its stake in Citi. The Kuwait Investment Authority, the Gulf country's sovereign-wealth fund known as the KIA, said this month it sold a $4.1 billion stake in Citigroup Inc., for a $1.1 billion profit. Shares of Citigroup fell about 3% in the early going. Read more about the Abu Dhabi, Citi spat.

Asset manager Franklin Resources also fell. It shed about 1.8% as Deutsche Bank analyst recommended clients sell it and buy rival T. Rowe Price , which rose 1 best auto loan rates.8%.

"While core trends at both firms have been solid, including strong investment performance, healthy relative flows, and significant margin improvement, industry trends have favored Franklin since June, which aided its outperformance versus the sector." The analysts concluded.

"That said," they added, "over the next 12 months, we expect industry trends to begin to favor T. Rowe Price, including improving 401k flows, a pickup in institutional flows, and a gradual shift into equities, which should drive its relative outperformance."

The analysts downgraded Franklin to hold, and upped T. Rowe Price to buy.

Also moving on analyst comments, Charles Schwab shares added 2.1%.

Deutsche Bank analysts upgraded the stock to buy from hold, and raised their price target to $25 from $18.

"Schwab has maneuvered well during the downturn, and while the stock has underperformed due to significant rate pressures, the firm is well-positioned to benefit on multiple fronts (flows, rates, and margins) as conditions improve," Deutsche Bank said in a research note.

The analysts said the call could be premature, but they think the risk is justified since they view estimates at our near "trough levels" and forecast earnings-per-share growth in the range of 60% to 80%, or more, in the next two to three years. They said they expect Schwab to outperform over the next 12 months.

Financial Stocks: Financials mixed as Citi slips on Abu Dhabi claims