Bank stocks throughout Europe are surging.

The catalyst: Falling interest rates and growing optimism that an economic recovery is near.

Over the past three months, bank shares have climbed 37% in Switzerland, 23% in France, 19% in Ireland, 15% in Britain, and 13% in Austria and Germany.

The major exception was Italy, where prices fell by about 4%, mainly because of mounting problem loans to big corporate borrowers like Ferruzzi Finanziaria.

In comparison, Standard & Poor's price index for U.S. regional banks rose only 4% over the same period, while money center banks rose 14%.

|May Be a Recovery Coming'

"Things are changing in Europe, and there may be a recovery coming," said Robert Alberston, a banking analyst with Goldman, Sachs & Co. in New York.

"Many see a U.S.-style scenario being transplanted."

Analysts think the rally still has a way to run, despite a drop in bank stocks Tuesday that was attributed to profit-taking and concern that continued high provisions for loan losses are in store.

They noted that many banks are still trading at close to their 52-week highs. Deutsche Bank, for example, lost nearly 9 marks ($5) Tuesday to end at 773 marks ($455), but that was still more than 10% higher than its price in mid-June.

Martin Wirth, analyst with Credit Suisse First Boston in Frankfurt, said many German shares are still undervalued and predicted falling rates will further boost the profits of Deutsche Bank and other German banks.

Analysts in France noted that Tuesday's decline came after sharp recent improvements and predicted more gains for banks.

Spanish and Portuguese bank analysts were also bullish.

They noted investors view banks as a safe bet in those two countries and pointed out that share prices for banks in Spain and Portugal remained unaffected by the drop in prices elsewhere in Europe on Tuesday.

Recent currency exchange-rate fluctuations have also helped Spanish, Portuguese, and other European banks boost earnings, they said.

|The Main Beneficiaries'

"Banks have been the main beneficiaries of falling interest rates and speculative trading in currencies," said one analyst.

"We see a lot of income coming from these areas."

In contrast to the sharp movements in prices in Europe, bank stock prices were down slightly in the United States Tuesday following Monday's across-the-board rise in response to a renewed decline in interest rates.

Gainers included J.P. Morgan & Co., up 25 cents to $71.875; Society Corp, up 50 cents to $32.875; First Bank Systems, up 37.5 cents to $31; First Chicago Corp., up 50 cents $46.625, and Firstar Corp., up 50 cents to $33.375.

Among the losers were First Interstate Corp., down 37.5 cents to $62.625; First Fidelity, down 12.5 cents to $48.50, and Old Kent Financial, down 62.5 cents to $34.375.

|Nothing's Moved a Lot'

"Stocks are mainly down, but nothing's moved a lot." said Mark Alpert, an analyst at Alex Brown & Sons Inc.

Both other analysts said that continuing drops in interest rates are also an indication that loan demand remains weak and may actually be deterring investors from banks.

"Investors are much more interested in seeing uptick in loan growth than an uptick from Chapter 12's in a declining interest rate saga," said Mr. Albertson.

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