Banks stocks fell with the rest of the market after Intel Corp., the computer chip maker, warned of disappointing first-quarter profits.
The caution flag from the technology company was quickly interpreted by Wall Street as a harbinger of lackluster results ahead for other firms.
The Standard & Poor's bank index fell 0.81% and the Dow Jones industrial average 1.10%. The S&P 500 also dropped 1.17%.
Banking industry watchers said first-quarter bank earnings prospects appear strong, but noted that recent sharp swings in the market have made investors more anxious than usual.
"I think we are just seeing a lack of conviction in the money-centers," said Nancy A. Bush, associate research director at Brown Brothers, Harriman & Co. She also said investors were uneasy over the outlook for interest rates.
Thomas Carpenter, chief economist at ASB Capital Management noted that the bond market on Thursday was reacting negatively in advance to Friday's unemployment report, which is expected to be robust.
"We have had a string of strong employment numbers and the expectation is that Friday's employment report will also be strong," said Mr. Carpenter. But he emphasized that "it is only short-term pessimism that is play today."
Mr. Carpenter, who once analyzed bank stocks, said a strong employment report does not necessarily mean inflation-but that the bond market still continue to react that way.
"Bond traders see inflation around every corner," said Mr. Carpenter.
Some of the biggest losers of the day include J.P. Morgan & Co., down $2.25, to $121.5625; Chase Manhattan Corp., down $2.125, to $120.3124; and Citicorp, down $2.25, to $129.25.
Financial stocks that took the worse beating, however, were thrifts and community banks whose shares trade on Nasdaq, which is also home to Intel and many technology stocks.
In the last week, the Nasdaq bank index-which is made up of mostly of thrifts and small banks-has fallen 12.4%; the index declined just 0.80% on Thursday.
Thrift analyst Thomas O'Donnell at Salomon Smith Barney, said despite strong thrift fundamentals, investors continue to worry about the yield curve flattening because homeowners refinance their homes.
Investors also are increasingly anxious about the year-2000 issue, he added. Much older computer software and equipment will not be able to handle the calendar change to the new millennium.
"Many thrifts and small banks still don't have the wherewithal to adjust to the year-2000 issue," said Mr. O'Donnell. Most are likely to sell out as they eye the high purchase prices banks have shelled out, he said.
In other news, BankBoston Corp. gave an informal party for its employees on Wednesday to celebrate the company's stock price moving past the $100 per share mark on Tuesday. Officials noted that the company gave employees stock options last year.
Industry analyst Michael L. Mayo pointed out that the gathering was "significant when you consider how far the company has come since the recession.""This is a company that cares about its stock price," said Mr. Mayo. BankBoston's shares fell $1.1875 to $98.875.
