S&P Bank Index Rises 1.9% as Rate Fears Recede

Bank stocks surged Tuesday, suggesting that fears of an interest rate hike have for the time being been put on the back burner.

The Standard & Poor's bank stock index rose 1.86%, outpacing the Dow Jones industrial average, which rose 0.31%. Meanwhile, the Nasdaq bank index fell 0.07%, and the S&P 500 declined 0.11%.

Among the biggest gainers of the day were First Union Corp. and NationsBank Corp.

First Union's shares rose $2.125, to $87.125, on better-than-average volume; NationsBank's stock was up $1.25, to $59.875.

Both companies got a boost Tuesday when Morgan Stanley & Co. upgraded their shares to "strong buy" from "neutral."

Analyst David Hilder, who did not raise his earnings estimates for either company, said that First Union earned the upgrade because of its rising fee-based revenues, technological edge, and returns exceeding shareholder costs.

NationsBank has shown "skill at executing an acquisition and (boasts) strong consumer diversity and conservative credit culture," Mr. Hilder noted.

Both banks have been recent favorites in the analyst community. First Call Corp. reported that the consensus evaluation of both companies had been "relatively bullish for some time."

Nevertheless, the upgradings came as concerns about dilutive or difficult acquisitions remained in investors' minds.

Investors are particularly nervous about First Union, which has done dilutive acquisitions in the past.

Yet bank analyst Anthony Davis of Dillon Read said he expects such anxieties to dissipate soon.

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