The Federal Reserve, as widely expected, left the overnight bank lending rate unchanged at 4.75% after its final monetary policy session of the year Tuesday.

After reducing rates three times in the previous three months, the Fed was considered by most market experts highly unlikely to make a fourth cut- given the strength of the economy and the financial markets.

"Had they done anything it would have been an enormous surprise. The world pretty much assumed that this was the month of no activity," said Lawrence W. Cohn, research director at Ryan, Beck & Co., Livingston, N.J.

Some investors and economists expect the Fed to resume easing rates at its next meeting in February, but Mr. Cohn has his doubts.

"The next couple months are unclear as to where the Fed may go," he said. "Certainly if there is a continued weakness in manufacturing, that would lead to further cuts; but with a 4.4% unemployment rate and nil inflation, it is not apparent that the Fed has to do anything.

"We are in the 'Fed is more likely to cut than not cut' camp, but I wouldn't say that we would bet our lives on it," the veteran banking industry analyst said.

Meanwhile, bank stocks sold off on light volume. Market sources said the action was motivated more by yearend and pre-holiday profit taking than by any investor reaction to the Fed's decision not to ease interest rates.

The Standard & Poor's bank index fell 0.99%, while the Dow Jones industrial average rose 0.62%. The Nasdaq Bank index declined 0.61%, and the S&P 500 rose 0.06%.

Losers of the day included First Union Corp., down $1.50 to $61.4375; J.P. Morgan & Co., down $1.0625 to $102.1875; and BankBoston Corp., down $1.0625 to $39.5625.

"Bank stocks have been very strong in the last few days, and they need a rest," said Mr. Cohn.

Indeed, the Standard & Poor's bank index gained more than 5% in just three trading days.

But while market experts shrugged off the slippage in stock prices, there were concerns for most banks' stock going forward.

From an earnings perspective, banks have done better than other industries, said analyst Stephen Biggar of the S&P Equity Group. But the recent rally in both bank stocks and the general market has not been driven by fundamentals, Mr. Biggar said.

"Economists are predicting earnings for the S&P 500 companies to be flat or up 4% next year, while Wall Street analysts are predicting earnings for the S&P 500 to be up 15% to 18%," he said.

That wide discrepancy is uncomfortable for the market, the analyst said.

Mr. Cohn's concerns are much more shorter term.

"Tuesday was the last day of normal activity. The market is going to sleep pretty fast between now and the rest of the year," said Mr. Cohn.

"We are concerned about markets where volumes are slow and institutions have pulled in their horns," he said. "Any random event-like the outcome of the President's impeachment-could make a big impact on a sleepy market where a lot of capital is on the sidelines."

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