Bank Stocks Drop As Bonds Fall on Japanese Rate Rise

Bank stocks stumbled Wednesday in sluggish preholiday trading amid falling bond prices and modest profit taking.

The benchmark 30-year Treasury bond was down sharply at midday on fears of rising Japanese interest rates. An official at the Bank of Japan said the country's improving economy could prompt higher interest rates.

That would dampen hopes that the Federal Reserve will cut U.S. interest rates, and it could dry up a source of U.S. bond investment. Because of Japan's low interest rates, Japanese investors have borrowed heavily to invest in U.S. Treasury securities.

With bond prices falling, the Standard & Poor's index of major banks fell 0.24%. Bank stocks traditionally fare poorly when bond prices decline. The S&P 500 index rose 0.09%.

Leading the bank declines was Chase Manhattan Corp., which fell 87.5 cents a share, to $73.375.

Synovus Financial Corp. fell $1.125, to $33.50, after Robinson-Humphrey Co. downgraded its near-term rating to "neutral" from "buy."