Bank stocks rose with the rest of the market after investor Warren Buffett said in his 1997 annual report the stock market was not overvalued because of the favorable interest rate environment and the prospect for strong corporate earnings.

For the past two years, Mr. Buffett, chairman of the financial vehicle Berkshire Hathaway in Omaha, has said U.S. stock prices were too high.

Mr. Buffett said Berkshire sold more than 600,000 shares in Wells Fargo & Co., trimming its position to 7.8%. He also said it had reduced its stake in Freddie Mac by 250,000 shares, to 8.6%.

Mr. Buffett praised Wells for its share repurchase strategy, however.

"The repurchases that Coca-Cola, The Washington Post, and Wells Fargo made in past years at very low prices benefited far more than today's repurchases made at loftier prices," wrote Mr. Buffett.

Wells Fargo's shares rose $6.125, to $$325.625. Freddie Mac stock fell 18.75 cents, to $49.

Mr. Buffett also spoke bullishly about American Express Co., in which he has a stake, and Salomon Brothers, which was recently bought by Travelers Corp.

At his annual meeting last year Mr. Buffett, who is also known as the Oracle of Omaha, had gone so far as to assert that the shares of Berkshire Hathaway were overvalued.

However, in his 1997 annual report, which was released on the Internet over the weekend, Mr. Buffett made a 180-degree turn.

"There is no reason to think of stocks as generally overvalued," said the second-richest man in America. "On the other hand, returns on equity are not a sure thing to remain at or even near their present levels."

The Standard & Poor's bank index climbed 2.23% and the Dow Jones industrial average 1.35%. The Nasdaq bank index rose 0.62% and the S&P 500 1%.

Among the biggest gainers were BankBoston Corp., up $2.0625, to $62.75; Bankers Trust New York, up $3.8125, to $121.75; and Chase Manhattan Corp., up $3.0625, to $125.3125.

Elsewhere in the market, J.P. Morgan shares also surged on a report in the Apple Daily, a Hong Kong newspaper, that said the company is in talks with HSBC Holdings PLC. Shares were also buoyed by comments from UBS Securities bank analyst Thomas Hanley. He said J.P. Morgan would be bought out in 12 months and raised his target price to $175.

J.P Morgan's shares jumped $5.0625, to $130.0625, on twice average volume.

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