The roller-coaster ride for bank stocks may have just begun, according to a veteran analyst who has become "very concerned" about the stock market's recent volatility.

Richard X. Bove of Raymond James & Associates, St. Petersburg, Fla., a longtime bull on banks, has been cautioning his clients for the last 10 days to hold their stocks and "stay out of this market."

"I have told them not to follow this knee-jerk reaction," said the analyst in an interview. "The stocks rallied last Monday, but they have given up everything and more in the last couple of days."

The volatility is being fed by uncertainty about interest rates, Mr. Bove noted. That should not really affect bank stocks, he said, but they have ended up once again acting as "surrogates to the bond market."

The net result, he said, is that bank stocks will "fluctuate meaningfully in the near term until there is some clarification of what the Fed is doing."

The Fed has created uncertainty in several ways, Mr. Bove said.

First, additional reserves have usually already been supplied to the banking system by this point in the fourth quarter. "This is usually done for seasonal reasons to allow the banks to provide the monies the economy needs during Christmas," he said.

By delaying, the Fed may or may not be trying to covertly tighten credit, he said. After all, Fed Chairman Alan Greenspan recently upset the markets worldwide with a rhetorical question about too much speculation in asset values and a passing mention of the word "bubble."

Rumors have also swirled that the Fed may be buying treasury securities from Japan to both provide the necessary liquidity in the U.S. economy and ease Wall Street's concerns about the future of Japanese holdings.

Certainly, nothing is conclusive, said Mr. Bove, but the bottom line is that all these factors add to the markets' uncertainty, "and you don't invest in uncertain markets."

But the analyst, who has been bullish about bank stocks for the last 15 months, is not changing his long-term views.

Mr. Bove is quick to reiterate that "rising interest rates actually do not hurt bank stocks." Too many investors and portfolio managers believe differently, he said, and "this penalizes bank stocks every time."

But bank stocks look good even in a weaker market if the rate uncertainly is calmed, he said. And he cites two major reasons for feeling that way:

First, "the pressure for a major increase in U.S. money supply, inflation or a major decline in the dollar's value do not seem in place," Mr. Bove said. "Therefore, interest rates are expected to remain low and the value of bank assets intact, no matter what the Fed does near term."

Second, "bank earnings, driven by the new strengths demonstrated by the big banks, are likely to rise continuously in the next few years," he said. "This will push up earnings."

Others observers are not as concerned about the immediate outlook as Mr. Bove.

Stuart G. Hoffman, chief economist at PNC Bank Corp., Pittsburgh, said the Fed's lack of action could mean reserves are adequate already. But just because Fed officials haven't supplied more reserves to the banking system "doesn't mean they are not going to," he added.

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