By Shawn Langlois, MarketWatch

SAN FRANCISCO (MarketWatch) -- AK Steel Holding Corp. shares rose 11% Tuesday, resisting a decline in the broader market thanks to a pair of broker upgrades that painted a bullish future for the turbulent metals sector.

AK Steel  closed up $1.54 at $15.06. Still, the stock has shed almost a third of its value since the beginning of the year while the S&P 500 Index has lost 4%.

The Dow Jones Iron & Steel Index has dipped more than 3% year to date, and AK Steel has taken its place among the hardest hit components in the benchmark.

The steel industry has built up capacity this year, girding for what many had predicted to be a sustained economic revival. But this expected bounce has been thrown into question in recent weeks as the financial crisis in the euro zone grows more alarming.

Mounting jitters aside, Citigroup analyst Brian Yu said he believes AK Steel has bottomed out after a brutal stretch. He raised his rating on the stock to buy with a price target of $19 a share. AK Steel, however, is still mostly out of favor on Wall Street, where only two of 14 analysts maintain a buy rating, he pointed out.

"The value or value-trap debate will be answered by the direction or pace of economic recovery," he said in a note. "Iron ore cost headwinds are well known but the market may be ignoring AKS's stainless steel exposure."Overall, Yu is looking for good things from the metals group, particularly in light of the recent market downturn for some of its biggest players.

Despite his upbeat take on AK Steel at the current levels, his favorites in the group, in order, are Freeport-McMoRan , Cliffs Natural Resources and Nucor .

"We believe metals stocks offer good value here under tempered expectations given recent declines," Yu said.

All three were down early but managed to finish in the black, Freeport led the way, up more than 3%. Cliffs, however, is by far the biggest winner in the past year, having more than doubled amid higher pricing and improved demand.

Earlier this month, Goldman Sachs lit a fire under the sector when the bank added U.S. Steel Corp.  to its "conviction buy" list.

"Global steel production has rebounded, approaching the peak seen in mid-2008," analyst Sal Tharani said. "We expect 2010 worldwide steel production to be higher than in 2008. At the same time, inventories in the U.S. remain at historically low levels."

Bank of America Merrill Lynch threw some water on the rally less than a weak later when it downgraded three European steel makers, saying that while they look inexpensive, "valuation becomes 'meaningless' when the macro outlook turns uncertain."

But, like Citigroup, Merrill turned more bullish on AK Steel Tuesday, raising its rating to neutral from underperform. Analyst Kuni Chen also raised his rating on RTI International Metals , which helped boost the stock by 4.8%.

Along with the two upgrades, he listed Cliffs, Alpha Natural Resources, Peabody Energy and Freeport as his favorites in order of preference.

"Aside from valuation upside potential and catalysts ahead, our top picks all have very clean balance sheets," he said.

Shawn Langlois is a reporter for MarketWatch in San Francisco.

Sourced from www.marketwatch.com