A late afternoon rally allowed bank stocks to edge higher on the first day of trading in 1998.

Bank shares spent much of the day lower, on profit taking and renewed skittishness about South Korea.

With about 30 minutes left in the trading session, investors returned to bank shares, lifting Chase Manhattan $1.625, to $110.50, and Citicorp by $2.565, to $129. But J.P. Morgan failed to catch a second wind and ended the day at $112, down 87.5 cents. Wells Fargo & Co. also dropped, by $1.5625, to $337.875.

Christopher Kotowski of CIBC Oppenheimer said trading in bank and other stocks at this time of year tends to be erratic. "I wouldn't read too much into" the movement, he said.

Indeed, the holiday period is often marked by profit taking, as investors sell shares to dress up their results and rejigger portfolios for tax reasons. Stocks also tend to move dramatically because of thin trading.

First Empire State Corp. continued to zigzag, falling $4, to $461, after a run-up during the past two weeks. Shares of the Buffalo banking company, which operates M&T Bank, were up $11 one day last week and have risen $25 since Dec. 24.

The $13.7 billion-asset institution's investor relations chief said there was no corporate news to account for the activity. Shares of the institution are closely held and tend to react sharply to even modest buy or sell orders. Warren Buffett is one of the banking company's largest shareholders.

Some of the year's best performers took hits on Friday as a result. Marshall & Ilsley Corp., which was up 79% for 1997, fell $2.625, to $59.50. The Milwaukee banking company "remains fundamentally solid," said Denis Laplante, analyst with Fox-Pitt, Kelton.

The final weeks of 1997 were also marked by economic problems in Latin America and South Asia, and bank stocks continue to feel the repercussions.

The latest jolt came Friday on word that smaller financial institutions may not embrace as readily as larger banks accords to roll-over and restructure South Korean debt. (See story on page 1)

For the day, the Standard & Poor's bank index edged up 0.28%, while the Dow Jones industrial average rose 0.72%. The Nasdaq bank index was off 0.14% while the S&P 500 was up 0.47%

Shares of City National Corp. fell 43.75 cents, to $36.50, on the eve of its purchase of Harbor Bancorp. City National, Beverly Hills, agreed to pay $24.10 in cash and stock for each share of Harbor Bancorp, in a deal scheduled to close at the end of this week.

City National, with $5 billion of assets, expects to boost its Southern California presence with the purchase of $341 million-asset Harbor, based in Long Beach, Calif.

One planned public offering has apparently been shelved for the time being. Thrift regulators are apparently concerned about the structure of a proposal by California Federal Bank to sell a 15% stake to the public.

Under the offering, principal owners of the San Francisco thrift would receive proceeds from settlements of goodwill cases that were filed against the federal government.

The $30.9 billion-asset institution is principally owned by financier Ronald I. Perelman, with chairman Gerald J. Ford holding a minority stake.

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