Wall Street's mood swings over interest rates this year have had a big impact on many bank stocks, and perhaps none more than Chase Manhattan Corp.

Chase lost its "buy" investment rating from Merrill Lynch & Co. last month when it appeared certain the Federal Reserve would raise rates, then quickly got it back after market sentiment about a Fed move shifted.

"We got a little bit more spooked than we should have," Judah S. Kraushaar, Merrill's first vice president and money-center bank analyst, acknowledged last week.

Shortly after the government's June employment report, released in mid- July, suggested a strongly growing economy, Merrill cut ratings on several banks out of concern that a rate hike was imminent.

Besides Chase, the banks downgraded to "accumulate" from "buy" at the time included NationsBank Corp. BankAmerica Corp, Republic New York Corp., and Signet Banking Corp.

In a fresh report last week, Mr. Kraushaar restored his "buy" rating on Chase. "In retrospect, our fear was misplaced," he wrote.

With fresh data hinting that the economy's pace has slackened a bit, the markets' current attitude is that the Fed will not raise rates until after the presidential election.

But the Merrill analyst did not take back everything. He said he had no immediate plans to upgrade the other banks because "it is still possible that the Fed could tighten."

Mr. Kraushaar's moves reflect the uncertainty that has gripped both the financial services sector and the market at large since last spring, with each fresh economic indicator - particularly the monthly employment report - sparking a major reaction.

Defending his earlier action, Mr. Kraushaar said that at the time of the initial downgrade bank stocks had underperformed the S&P 400 index by 400 basis points over a 12-month period. Now, however, bank stocks have outperformed the S&P by 100 basis points over the last 12 months.

Meanwhile, although most indicators are currently pointing to a slower economy for the rest of the year, bank stock downgrades are continuing.

Analyst Carole S. Berger of Salomon Brothers Inc. emphasized that the July anxieties over rates were not entirely misplaced.

"Interest rates do tell you about fundamentals," she said. "When the economy is hot and rising, bank stocks underperform because of valuation issues and fears the Fed will tighten."

At the time when a rate hike appeared to loom the largest, Salomon upgraded BankAmerica and Wells Fargo & Co. Indeed Mr. Berger's bullish report on BankAmerica was in the mail on a day that robust economy data caused the general market to drop sharply.

"I didn't try to stop my report," she said. "The stock was killed on Friday and didn't too well for the next week, but a 25 or 50 basis points hike is not going to change the long-term value of a company."

Analyst Michael L. Mayo of Lehman Brothers also continues to be optimistic about the bank stocks, although he downgraded Mellon Bank Corp. and Southern National Corp. in July for valuation reasons.

Another analyst who remained bullish in July, Raymond James & Associates' Richard X. Bove, said that the overabundance of downgrades are based in part on people who have a short-term view and always have their parachute ready.

Banks stocks, he pointed out, are readjusting to the economic environment. 'Bank stocks (price-to-earnings multiples) will continue to moving toward a high multiple," he said.

"But you have a bunch of nervous investors and analysts and whenever they see something that suggests they pull out of the stocks, they hit the silk."

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