Bank Stocks Regain Some Strength with Late Rally

Bank stocks appeared to regain some strength late Tuesday after a weeklong slide, but analysts predicted further volatility for interest- sensitive financial stocks.

The release of an ambiguous series of economic indicators did nothing to dispel the effects of Friday's unexpectedly strong Labor Department report, which had already dashed the market's hopes for a rate cut by the Federal Reserve.

But in late trading the Standard & Poor's bank index bounced back from a decline of more than 2% earlier in the day.

At the close the S&P bank index was off 0.52%, while the S&P 500 lost 0.46%, and the Dow Jones industrial average gained 2.89, an increase of 0.05%.

"There's going to continue to be volatility given the change in perception with regard to interest rates," said Sandra Flannigan, a bank analyst at Merrill Lynch & Co.

The bigger losers on the day included NationsBank Corp., which fell 62.5 cents to close at $73.625, Republic New York, off $1 to $57.375, and Regions Financial Corp., which fell 87.5 cents to close at $45.50.

The banks, which frequently trade in concert with the direction of government bonds, suffered as the price on the 30-year Treasury fell a full point by midday and the yield jumped to 6.72%.

The economic data showing a rise in car sales and stronger retail activity suggested a more robust economy. But the Atlanta Fed's national business activity index dropped to -14.9 in February from -13.2 in January, hinting at a slower growing economy.

The market appeared to be anxiously awaiting the producer price index, due Thursday, and the consumer price index, due Friday.

But bank stocks recovered smartly at about 3 p.m., as bargain hunters focused on the sector. "A lot of people were waiting for some price break to get more active," said Michael Mayo of Lehman Brothers.

"Merrill Lynch believes Friday's job report numbers are an aberration," Ms. Flannigan said. "Under that scenario, bank stocks should not be bad performers looking ahead."

The Merrill Lynch analyst said Chemical and Chase, Republic New York Corp., Norwest Corp, Wells Fargo & Co., NationsBank Corp., and Northern Trust could do well.

But others were skeptical of the industry's prospects.

"In the near term, any periods of strength present selling opportunities," said Rafael Soifer, a bank analyst at Brown Brothers Harriman. "When the market decides where it wants to go, it will decide that it's an earnings-driven, bull market," he said.

Separately, Wilmington, Del.-based Beneficial Corp. benefited from upgrades to "buy" from "market performer" from J.P. Morgan & Co., and to "attractive" from "neutral" from Bear Stearns & Co..

The finance company's stock rose $1.25 closing at $54.25.

The upgrades follow the announcement of a private-label credit card program with KMart Corp.

Gruntal & Co. bank analyst Katerina Blecher said the KMart deal could double the company's credit card receivables in three years.

Analysts anticipated another private-label announcement from Beneficial in the near future.

Ms. Blecher also upgraded Greater New York Savings Bank to "outperform" from "speculative outperform," pointing to an improved balance sheet and a strong organization.

The stock fell 25 cents to close at $11.375.

"The sky might be falling right now for stocks, but the thrifts have been flat for the past six months, while the banks have gone up," Ms. Blecher said. "People will start viewing this as a place for value."

Greater New York has strong fundamentals and excellent market penetration, she said.

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