Banking shares continue to climb on relief over interest rate outlook.

Banks stocks rallied for a second day, following a half-point increase in short-term interest rates Monday by the Federal Reserve Board. The dow Jones industrial average closed at 3,372.89, up 12.28 points.

The Fed calmed financial markets Monday by signaling it will now pause for a while after its latest credit tightening.

"Fears of further rate increases were at the heart of our cautious stance toward bank stocks," said Prudential Securities Inc., analyst George Salem. With those fears allayed, Mr. Salem upgraded Chase Manhattan Corp., Chemical Banking Corp., and NationsBank Corp. to "buy" from "hold." Bankers Trust new York Corp. rose to "hold" from "sell."

The Prudential analyst said bank earning could get a boost from the latest increase in the prime rate, which now stands at 7.25% up 1.25 percentage points since February. Deposit rates, Mr. Salem pointed out, have "hardly budged."

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