Banks are unlikely to get much benefit from the Federal Reserve's latest cut in short-term interest rates.

The Fed cut its target for the federal funds rate by 25 basis points Friday, to 3%, the 24th time since 1989 that it has sought to stimulate the economy by making credit less expensive.

The previous rate cuts have reduced banks' cost of funds and bolstered profits. Another quarter-point cut in the funds rate will make little difference, analysts said.

Discount Rate Cut Expected

Further, economists think the Fed may soon cut the discount rate, now also 3%. This would put pressure on banks to reduce the prime rate. But banks probably would not be able to reduce deposit rates sufficiently to uphold margins, analysts said.

"This rate cut will not positively effect the margins at this point," said Alison Deans, an analyst at Smith Barney, Harris Upham & Co.

The limited potential benefits of the rate cut were reflected in the bank stock market Friday. The major issues were mixed in lackluster preholiday trading, with gains and losses for the most part being less than $1.

The strongest gainers were J.P. Morgan & Co., which rose 62.5 cents to $60.25, and Bankers Trust New York Corp., which rose 75 cents to $62.25. Both are big users of the federal funds market.

The Dow Jones industrial average finished at 3,281.93, down 10.27 points.

Reaction to Employment Woes

The easing followed the release of a Labor Department report showing that nonfarm payrolls fell by a shocking 83,000 jobs in August. The consensus among economists had been for a gain of 155,000 jobs.

"You'd have to say that the employment figures are more consistent with a recession than a recovery," said Norman Robertsen, chief economist at Mellon Bank Corp. "Whether the funds rate is 3% or 2.5%, the Fed has done about all it can to revive the economy."

The Fed's ability to stimulate the economy is complicated by the dollar's weakness, which encourages foreign investors to sell dollar-denominated assets. Low interest rates further deter foreign investment, and some economists think the green-back's recent fall has kept Friday's rate cut to 25 basis points.

Besides cutting the discount rate, some economists expect another lowering of the fed funds target. But lowering rates further may not be productive, economists said.

Lure for Lending

Short-term rates are already about the same as the rate of inflation, which would make lending about as attractive as possible.

Early in the rate-cut cycle, easing sparked rallies in bank shares. Lower rates helped widen the margin between a bank's cost of funds and its lending rates, which buoyed profits in the absence of revenue growth. Indeed, in the first quarter of this year, banks reported a record profit of $7.9 billion, according to the Federal Deposit Insurance Corp.

But investors started to reexamine the benefits of rate cuts on July 3, the last time the Fed eased. That day, bank stocks plunged as investors reasoned that profit margins had peaked, at least without an increase in loan demand.

The rate cut on Friday did not cause the same selloff, but investors remained skittish. The bank stock correction that started in mid-July is not over yet, said investors and analysts.

|Beginning to Lose Patience'

"Investors have been hoping that bank loan figures would begin to improve more than they have, and they aren't," said Eldon C. Mayer Jr., chairman of New York money managers Lynch & Mayer. "Some investors are beginning to lose patience."

Banks may continue to underperform the market until they can show solid gains in earnings. Some analysts believe the demonstration will not come until credit costs decline. They said the next stage of a bull market for bank stocks will begin in January.

Other analysts are more sanguine.

"I think the correction is close to being over," said Tom Brown, an analyst with Donaldson, Lufkin & Jenrette Securities Corp. "We are approaching the next quarterly earnings period. With the earnings momentum, the relative value of the stocks, and dividend growth prospects, banks are an attractive sector."

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