WASHINGTON - The Federal Reserve Board approved Chase Manhattan Corp.'s application to buy U.S. Trust Corp. of New York, handing the money- center a major victory over a Bronx-based community group.

"We are pleased with the Fed's approval and confident that the other regulatory approvals will be forthcoming," said Charlotte Gilbert, a spokeswoman for the $121-billion-asset banking concern. She declined to comment further.

The Office of the Comptroller of the Currency still must rule on Chase's application, which would give the bank the securities processing and related back-office operations of U.S. Trust. It would also gives Chase control of Mutual Fund Service Co., which provides administrative services to mutual funds.

The Fed also gave U.S. Trust permission to reorganize itself to facilitate Chase's acquisition.

Inner City Press/Community on the Move vigorously protested the acquisition on Community Reinvestment Act grounds, arguing that Chase did not serve the Bronx.

"We are disappointed," said Matthew Lee, the group's executive director. "But we can't say we are surprised, because the Federal Reserve is like an approval machine."

Mr. Lee's group tried unsuccessfully earlier this year to derail Chase's bid to merge its New York and Connecticut operations. Though Inner City Press has lost its two battles with Chase, it has been more successful with other New York banks. Six institutions have committed during the past year to lend $88 million in the Bronx, and to open two branches, two loan production offices, and two ATMs.

Mr. Lee vowed to continue his campaign against Chase. "It is not the end of the game by any means," he said.

The Fed debunks all of Mr. Lee's CRA charges in a heavily footnoted 21- page section of its July 24 order.

First, the Fed said Chase's subsidiary banks received either outstanding or satisfactory grades during their most recent CRA exams. Also, U.S. Trust was rated satisfactory during its most recent review.

Second, the Fed said it found no evidence that Chase violated the fair- lending laws. It said the OCC found no problems during a recent fair- lending exam. Also, it dismissed the group's charge that Chase's policy of referring applicants to specialized lending units on the basis of product profile and financing requirements violates the law.

"The board concluded that the protestant's allegations did not support a finding that fair-lending laws had been violated," the Fed said.

Third, the Fed said Chase plans to unveil a small-business loan program in the Bronx and it participates in numerous government-sponsored lending initiatives.

Finally, the central bank said Chase's 1993 and 1994 Home Mortgage Disclosure Act data show the bank is committed to extending credit to low- income neighborhoods.

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