Some money managers and Wall Street analysts believe that the worst of the bank stock sell-off has passed.

To be sure, the market retreated again on Friday, and no one is predicting a rally soon. Nevertheless, some in the investment community took heart from a three-day string of gains earlier in the week.

In a letter to clients sent last Thursday, Thomas H. Hanley, analyst with First Boston Corp., predicted that bank shares will "stabilize and then improve over the next five to six weeks as we approach the end of the second quarter."

Mr. Hanley said he expects banks to generate strong operating results between now and 1995, with "little risk of disappointment."

Rosy Estimates

The First Boston analyst predicted a 27% jump in operating earnings per share this year, followed by a 13.8% boost in 1994, and a 12.1% rise in 1995.

Some money managers believe that earning announcements for the second quarter will catapult bank stocks to 12-month highs.

"Bank shares are definitely going to come back," said Harry Keefe, a New York money manager. "People have rethought the inflation issue, and they just don't see it."

The inflation scare, which surfaced two weeks ago, helped push down bank share prices. The share prices were already nosediving, as big mutual funds and money managers sold their holdings because they did not think sizable revenue growth was likely.

Fed Holds Steady

The first signs of life in bank stocks began last Tuesday, when the tension about the future of interest rates eased.

Some had expected the Federal Reserve, whose policymaking Open Market Committee met that day, to raise its target for the federal funds rate in response to signs of rising inflation.

When no tightening occurred, it was seen as a signal that the Fed was going to keep short-term rates steady. To many investors, a rise in rates means lower bank profits.

Before Friday, the market had eked a small gain, with the American Banker index of bank stocks rising 0.21% in the five days ended last Thursday.

Down Day on Wall Street

On Friday, the general market fell along with bank shares. Leading the way down for the sector were shares of Chemical Banking Corp., which lost $1.25 to $36.50 and shares of Citicorp, which lost $1.125 to $27.625.

Bank shares showed other signs of life last week.

Mr. Keefe pointed to a block trade of four million shares of BankAmerica Corp. last week through Goldman, Sachs & Co. They are worth roughly $200 million. The shares rose 25 cents on the day.

"That isn't a bear-market signal," said Mr. Keefe.

Richer Dividends

In another positive sign, several banks sharply increased dividends last week.

Last week, Barnett Banks Inc. raised its dividend by 9%, Fleet Financial Group by 11%, First of America Bank Corp. by 14.3%, and Huntington Banc-shares Inc. by 22.2%. For Fleet, it was the second increase in the past six months.

"It is not my experience that stocks go down when dividends go up," said Mr. Keefe.

He thinks Bank of New York Corp. may follow. The company typically pays out 30% to 35% of earnings. After a recent meeting with bank management, he said earnings per share will grow sufficiently to justify an increased payout of as much as 33%. The annual dividend is now $1.52 per share.

Dividend increases whet the appetites of life insurance companies and other long-term investors. At the same time, "momentum players," who buy shares in rebounding companies, typically don't care about dividends. Money managers and analysts said that banks may increase the portion of revenues they pay out in dividends. Some analysts believe that bank dividends will rise faster than earnings, unlike dividends of the Standard & Poor's 500 companies.

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