Bank stocks surged Thursday after the Commerce Department released economic data suggesting that inflation is becoming less of a problem.

Although the figures somewhat dampened concerns about the possibility of the Federal Reserve raising interest rates 50 basis points at its meeting Tuesday, skepticism in the market remained fairly high about whether Thursday's rally was sustainable.

"This is not a significant rally; there is relatively no volume," said Charlotte A. Chamberlain, analyst at Jefferies & Co. Inc., Los Angeles. "The major event is the Fed meeting. That will set the tone. This rally is a dead cat bounce; we are not making up what we lost."

The American Banker's index of the 50 largest banks rose 2.62%, while its index of 225 banks rose 3.54%. The indexes are off 20.25% and 26.88%, respectively, from their highs of 657.0912 and 896.6938.

Gainers included Boston-based State Street Corp., up $5.1875, or 5%, to $109; Pittsburgh-based PNC Financial Services Group, up $1.625, or 3.78%, to $44.625; and J.P. Morgan & Co., up $5, or 4.08%, to $127.625.

Retail sales fell in April for the first time more than a year and a half, after having risen more than expected in March, the Commerce Department reported. Sales fell 0.2% to $266 billion, following a 0.5% gain in March. The department had estimated a 0.2% gain in March.

The figures superficially suggest that the economy is slowing, and hence might make Federal Reserve policy-makers less aggressive about raising interest rates Tuesday. The thinking in the market is that the Fed will raise overnight bank lending rates 50 basis points instead of the usual 25 because of concerns about the strength of consumer demand.

"Consumer spending fell below expectations, so some investors believe that the economy may be slowing and that the Fed may not have to raise interest rates as much going forward," said David Allaire, one of the two portfolio managers of the Imperial Bank Fund. "But the volume on many of these stocks is not that strong, leading me to believe that this will be a short-term rally." And even though they declined from March, sales were 9.7% higher than a year ago, suggesting that consumer spending will continue to fuel the economy in the second quarter.

"We need more indications that the economy is slowing than just this one figure," said Lori Appelbaum, analyst at Goldman Sachs Group, pointing out that two other major economic figures will be released between Thursday and the Federal Reserve meeting Tuesday.

The government plans to release the producer price index today, and the consumer price index Tuesday.

Bank stocks may have rallied, but pessimism is still prevalent in the market, said Adam J. Lewis, a senior vice president and bank stock trader at Keefe, Bruyette & Woods Inc. "You can see the pessimism in the low price/ earnings ratios and the volatility," said Mr. Lewis. Still, bank stocks are poised to move higher, he said. "Once people feel that the Federal Reserve is through tightening, then the financials are going to soar."

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