Revised cost-cutting estimates for the merger between Chemical Banking Corp. and Chase Manhattan Corp. have prompted analyst George Salem of Gerard Klauer Mattison to raise his earnings estimates for the combined bank.

The merger is expected to close by the end of the first quarter.

The analyst raised his 1996 earnings estimate for the combined entity 2% to $7.40, and the 1997 estimate 3% to $8.50. He also raised his 12-month price expectation 13% to $85 per share, and his two-year forecast to $100 per share.

Chemical finished trading Monday up $3.125 to $66.125, while Chase finished up $2.875 to $68.125.

Mr. Salem attributed his action to cost-cutting assessments Chemical released earlier this month.

He also predicted thgat revenue losses would be lower than expected after the two banks merge, and that an increase in share repurchases should help boost earnings per share.

"The stock is quintessential value equity, given that it is trading at only 48% of the S&P 400 and a very low absolute P/E," he said. Mr. Salem predicts an 8.5 price-to-earnings multiple for the bank in 1996.

In other money-center trading, Citicorp shares rose $2.125 to $71.75 on news that analyst James Rosenberg at Lehman Brothers named Citicorp his top pick among money-centers.

Bank stocks rose sharply from early lows Monday as investors anticipated a decision on whether to lower interest rates at this week's Federal Open Markets Committee meeting.

The Standard & Poor's index of major banks rose 1.26% while the S&P 500 rose 0.42%. NationsBank Corp. shares rose $1.375 to $66.375.

Investors reacted favorably to a positive earning report by U.S. Bancorp. The Portland, Ore. bank's shares rose $1.125 to $32.50 in heavy volume.

And investors continued to applaud Firstar Corp.'s draconian restructuring plan, bidding the shares up $1.375 to $42.375, close to a new 52-week high.

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