Bank stocks plummeted Thursday amid a sharp selloff on Wall Street triggered by investors' fears about a spreading currency crisis in Asia.
Financial institutions with major Asian operations endured the worst drubbing, which came on the heels of a decline in the Hong Kong stock market.
"The market is punishing banks because of their exposures to Asia," said Yun Jae Chung, a banking analyst at Bessemer Trust Co., New York. "There's a lot of nervousness about what Hong Kong could mean" to U.S. stocks and markets.
New York's Citicorp, which has perhaps the most significant presence in Asia among U.S. banks, took the biggest hit, falling $7.25 to $136.75.
The slide in Hong Kong-its blue-chip index plunged 10% on Thursday- followed a sharp interest-rate hike by central banking authorities meant to stabilize the financial market.
But analysts said the move did not have the desired effect; it left investors wondering how Asian currencies will be pegged to the U.S. dollar and what the impact will be on earnings of multinational companies.
As Wall Street reacted, bank stocks surrendered in one session several days of gains that had accompanied the release of solid third-quarter earnings by the industry.
The Standard & Poor's bank stock index fell 1.68% as the Dow Jones industrial average slipped 2.33%. The NASD bank index fell 1.42, while the broad market S&P 500 dropped 1.84%.
The fall in bank stocks occurred despite a rise in bond market prices and a parallel drop in interest rates. That was a departure from the recent pattern, in which banks have risen in line with bond prices.
"That's not what people are doing today," said Lawrence W. Cohn, research director at Ryan, Beck & Co. in Livingston, N.J. "People are just waiting" until the selling stops.
Among other major U.S. banking companies with important business presences in Asia, Chase Manhattan Corp. fell $1.8125 to $122.625, and BankAmerica Corp. dropped $1.8125 to $76.9375.
After plunging at the opening, the Dow rallied briefly during the late morning on the release of optimistic data about inflation. Jobless claims unexpectedly rose 8,000 to 315,000 last week, suggesting a dampening of what Federal Reserve Chairman Alan Greenspan has suggested may be an unsustainable economic expansion.
The number, which represents workers applying for state unemployment benefits, was the largest increase in nine weeks and a sign of slower job growth.
Moreover, the rise in first-time jobless claims was the second consecutive weekly increase and the highest level since the week that ended Aug. 30, when claims totaled 325,000, the Labor Department said.
But the news did not calm the markets for long. After briefly regaining ground, selling pressure again mounted.
Some observers said the market was overreacting, given the rally in bond prices and the positive labor market news.
"Essentially we think that this is overdone, that it is technical," said Jack Ablin, head of fixed-income investing at Barnett Banks Inc., which has interests overseas. "When you see interest rates drop a full 10 basis points across the board, you would expect banks to rise, but Chase and Citi have gone the opposite way because of their international presence.
"Banks are down sympathetically with the stock market," Mr. Ablin said. "What's happening here is a flight to quality-the quality being U.S. Treasuries."
At the same time, one analyst offered a positive view of banks' potential for additional growth domestically and overseas.
Michael L. Mayo of CS First Boston Corp. on Thursday named Chase Manhattan and BankBoston Corp. as the top banks on his global banking list. "Markets worldwide can be characterized as having robust liquidity and fewer government restrictions," Mr. Mayo wrote.
He added that U.S. banks are fundamentally quite strong, benefiting from an era of "once-in-a-lifetime consolidation and the best efficiency levels since 1960."
