US lawmakers hammered out a historic overhaul of financial regulations as dawn broke over the nation's capital on Friday, handing President Barack Obama a major domestic policy victory on the eve of a global summit devoted to financial reform.

In a marathon session of more than 21 hours, legislators agreed to a rewrite of Wall Street rules that may crimp the industry's profits and subject it to tougher oversight and tighter restrictions.

To secure agreement, lawmakers reached deals in the final hours on the most controversial sections which restrict derivatives dealing by banks and curb their proprietary trading to shield taxpayer-backed deposits from more risky activities.

Banks will be allowed to keep most swaps dealing activity in-house, although the riskiest trading would be pushed out. They will also be permitted small investments in hedge funds and private equity funds.

The concessions could lessen the impact on bank profitability. US bank stocks opened about 1.0 percent higher, with Goldman Sachs Group Inc stock up about 2.0 percent in early trade.

The most sweeping rewrite of financial rules since the 1930s aims to avoid a repeat of the 2007-2009 financial crisis, which touched off a global recession and led to taxpayer bailouts of floundering financial giants. Financial institutions would have to pay $19 billion to cover the costs.

The reforms must still win final approval from both chambers of Congress before Obama can sign them into law, giving Wall Street one final chance to deploy its army of lobbyists on Capitol Hill. Quick approval is expected and the reform could go to Obama for his signature by July 4.

Democrats had raced to complete their work before Obama left for a weekend meeting of the Group of 20 economic powers, where he can tout the changes as a blueprint for other countries.

'This crisis proved and events continue to affirm that our national economies are inextricably linked and just as economic turmoil in one place can quickly spread to another, safeguards in each of our nations can help protect all nations,' Obama said at the White House shortly before departing.

Despite last-minute deals, the bill has actually gotten tougher in its year-long journey through the halls of Congress. Democrats rode a wave of public disgust at an industry that awarded itself rich paydays while much of the country struggled through a deep recession caused by its actions.

'There is no way to view this bill as a positive for the financial sector,' wrote Concept Capital analyst Jaret Seiberg.

The KBW bank stock index fell 10.4 percent in May this as the reform process gained steam, its worst month since October of last year, and the capital markets index fell 10.3 percent, its steepest drop since January 2009 when the crisis reached fever pitch.

Passage of the bill will give Democrats an important legislative victory, alongside healthcare reform, ahead of congressional elections in November. The House could vote as soon as Tuesday, Representative Barney Frank, who chaired the negotiating committee, said. - Reuters