Should a bank buy shares in other banks? Bank of New York Co. certainly thinks so.

Over the years, the company has developed something of speciality in snapping up the stocks of rivals as investments. The strategy, observers say, has allowed it to reap some handsome gains, form new business alliance, and position itself for acquisitions.

"They've been astute investors in bank stocks," said analyst Lawrence Cohn of PaineWebber. "They buy what's out of favor."

While Bank of New York keeps most of the investments close to the vest, the strategy moved into the spotlight last week when the company said it would hike it stake in State Street Boston Corp. to 9.9% from 4.99%.

The disclosure ignited widespread speculation that the New York company would soon try to acquire State Street. Bank of New York, however, said the move was "for investment purposes." And, some analysts say, it may well be as simple as that.

"This is a very logical investment in a growing company, that is involved in its own businesses," said analyst James McDermott of Keefe, Bruyette & Woods.

Certainly, holding bank stocks as investments has served Bank of New York well in the past.

Last year, for instance, the company reported an unspecified gain from its investment in Shawmut National Corp., whose stock was boosted when Fleet purchased it in 1995.

Bank of New York declined to discuss its investment portfolio. And many of the investments have involved stakes of less than 5%, so the company has not been required to disclose them.

"Bank of New York is quite enamored with the 4.9% strategy," Mr. McDermott said. But he and others say the company has indeed been an active investor - sometimes with major positions in big banks.

Observers said the company holds or has held shares of Florida-based Barnett Banks, a long-rumored acquisition target, and Summit Bancorp in New Jersey, which was recently acquired by United Jersey Bank.

Analyst Joel Silverstein of Deutsche Morgan Grenfell said Bank of New York has invested heavily in the Northeast and Middle Atlantic states and had a "good track record" there.

Another source said that Bank of New York has "opportunistically positioned itself in takeover targets" in the last few years.

"They have been very proactive in investing in thrifts locally and collectively, with reasonably good returns on their portfolio," the source said. "Shareholders will really benefit from that."

While making a big investment in another bank can produce big gains, such investments can also help establish relationships for a variety of business purposes, observers said.

Quarterly filings with the Securities and Exchange Commission show that Bank of New York also has targeted bank stocks when acting as an investment manager for its clients.

Bank of New York's investment fund unit currently holds large stakes in First Tennessee, another rumored acquisition target, and Northern Trust Corp., which also has trust and custody businesses.

The company, on behalf of its customers, also has bought into such institutions as Travelers Group, Citicorp, Chase Manhattan Corp., and J.P. Morgan & Co., according to the filings, which were compiled by CDA Spectrum.

These holdings, however, do not necessarily shed light on the stocks that the company picks for itself. For example, analysts say, the company may be pursuing longer-term strategies when managing clients' money.

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