Losing streak broken as fears of inflation and weak dollar ebb.

Bank stocks rallied on Wednesday along with bonds and other stocks, as investors suspended concerns about inflation and the weak international value of the dollar at least for a day.

Nearly all major banks, both money-centers and regionals, rode the up-draft, which broke a string of six straight negative sessions for the group.

Bank of Boston was up 75 cents to $25.50 per share, Fleet Financial Group advanced $1.125 to $38, First Interstate Bancorp surged $2 to $76.875, NationsBank Corp. moved $1 to $53.625, and Wells Fargo & Co. was up $1.25 to $155.125.

"This is the rally that shouldn't have happened, because we shouldn't have had the selloff that took place," said Frank J. Barkocy of Advest Inc. "The markets overreacted to the weak dollar and its impact on the bank stocks."

Jitters Seen Continuing

But the analyst said he anticipated continued pressure on the stocks in a skittish market until it becomes clear how the Federal Reserve Board plans to deal with the dollar.

The chief concern is that the central bank may have to raise rates to bolster the dollar, which hit postwar lows in international currency trading this week.

In congressional testimony on Wednesday, Fed Chairman Alan Greenspan said U.S. officials "cannot be indifferent" to sharp dollar movements. He said the Fed and the Treasury Department are closely monitoring the currency, but declined to say more.

Meanwhile, Treasury Secretary Lloyd Bentsen described himself as "concerned by recent movements in the exchange markets." He said the U.S. and other industrial nations will "continue to be prepared to act as appropriate."

Hints of Inflation

Investors, particularly in the bond market, have also been concerned that rising commodity prices, as reflected in the Commodity Research Bureau's index, may be a sign of future inflation.

"It would be better if the Fed moved to raise rates as soon as possible, if they deem that necessary," said Thomas H. Hanley, senior banking industry analyst at CS First Boston Corp.

"If there really is a threat of inflation," he said Tuesday, "they should act to push it as far into the future as possible," even if that has the effect of leveling off the economy's expansion.

The recent declines in bank prices "prove that these are interest-sensitive stocks, despite arguments about fundamentals overriding this" said George M. Salem of Prudential Securities Inc.

Indeed, he said, "the market right now seems to be using the banks as interest-sensitive stocks even more than other stocks."

The banks, he noted, have been moving more sharply in response to rate worries than have the stocks of brokerage firms or such government-sponsored enterprises as Fannie Mae.

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