Bank stocks lagged behind other groups Monday as investors sought bargains after Friday's rout.

The American Banker index was up only 1.59%, despite some cheerleading from analysts. The Dow Jones industrial average jumped 276.7, or 2.69%, to 10,582.5. As buying took hold late in the day, even the Nasdaq index soared, gaining 217.7 points, or 6.55%, to 3,538.9.

Bank analysts said the recovery did not indicate clear sailing ahead for the market at large - or banks. Some said March's rebound in bank stocks, which was interrupted last week, could eventually regain momentum.

They noted another round of strong first-quarter earnings reports, suggesting that some banks could eventually serve as safe havens in a volatile market. But they also said investors are likely to be more selective than in the past.

"My take is that we have turned the corner in the group, but there are going to be a lot of fits and starts," said Nancy A. Bush of Prudential Securities.

Ms. Bush cautioned that with investors more skittish, "a more sustained move is going to leave a lot of companies behind" - particularly those that show themselves to be exposed to interest rate risk or rely too heavily on a single business, such as capital markets activity.

Henry C. Dickson of Salomon Smith Barney said the key to attracting investors would be to stay focused on revenue growth. "The more focused you are, the better off you are," he said. "Increasingly we think that for investors to believe in earnings growth, a company has to show strong revenue growth.

"You can see the benefits of the focused approach in the Bank of New York and Northern Trust Co. results" which were reported Monday, Mr. Dickson said.

Bank of New York shares were up 12.5 cents, to $39.5625, and Northern Trust up $1 to $58,8125, after their first-quarter earnings reports Monday (See story, page 1.)

Ms. Bush said investors have unduly punished banks that last week reported strong investment banking and trading businesses for the first quarter, on the theory that those profits will dry up as the stock market cools off. She argued that some, notably FleetBoston Financial, are well diversified and likely to hit earnings targets, even assuming that capital markets activity tapers off.

Analyst Richard X. Bove of Raymond James & Associates in St. Petersburg, Fla., said the outcome of last week's meltdown would be a reversal of course by Federal Reserve policymakers.

The decline in the Nasdaq represents a shrinkage in the monetary base, he said, calling the situation that the economy faces "a worse crisis than the Russian ruble crisis.

"The Fed won't repeat the mistake of 1929, tightening credit and turning a scary market into a depression," he said "It is inconceivable that the Fed would tighten."

Indeed, he said the Fed would now start lowering rates. "When the market stabilizes, investors will turn to companies with capital, liquidity, and positive cash flow - the banks," Mr. Bove said. Other observers, however, said the Fed would continue to raise rates.

"The Fed watches a broader index, like the Wilshire 5,000," said Sun Won Sohn, chief economist at Wells Fargo & Co. "While the Nasdaq may have fallen 34% from its March 10 high, the broader index is down only about 15% from its peak March 24."

Noting the rise in the consumer price index that was reported Friday, Mr. Sohn predicted the Fed would stay on course. "Energy costs are spreading throughout the economy, and kind of like an oil spill, you can't mop it up overnight," he said. What's more, he said "labor costs have begin to raise prices as well.

"I still expect two or three more tightenings by the Fed for the rest of the year."

Nevertheless, Mr. Sohn said he too expects bargain hunters to buy bank stocks.

A more pessimistic view came from economist A. Gary Shilling of Shilling & Co., the author of a book predicting a sharp market downturn ("Deflation," McGraw Hill).

"Last week we saw the onset of a bear market." Mr. Shilling said.

He acknowledged that some investors will continue to buy on dips in the market, but argued that eventually the borrowing-and-buying binge that has fueled the market for about 17 years would give way to renewed savings.

"What I think changed last week was that people were trying to get out of stocks in general," he said, noting declines in both old-economy and new-economy stocks. "It'll take time before they finally decide that stocks are not going to work in place of saving. When they do, they'll touch off a recession.

"That's going to take long enough" he added, "that the Fed will raise rates a time or two" before it responds, too late, by easing credit.

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