Amsouth Bancorp. shares were upgraded to "buy" Friday by Interstate Johnson Lane analyst John J. Mason, who said acquisitions were beginning to pay off for the Birmingham, Ala., bank and that the stock was relatively cheap.

Its shares rose 37.5 cents, to $52.25, as pessimism about interest rates continued to choke investment in the banking sector. While the Dow Jones industrial average recouped about 56 points of the 161 it had lost Thursday, a 0.82% gain, the S&P bank index was up less than 0.01%, to 514.44.

Mr. Mason said Amsouth's $1.625 price decline, to $51.875 on Thursday- when the S&P bank index plummeted 3.5%-was only a minor factor in his decision to upgrade the shares.

"If the market goes up 150 points, we'll take a bow. But if it goes down, we'll still like this stock," the Atlanta-based analyst said.

Mr. Mason said Amsouth's performance prospects are helped by a low tax environment in the Southeast, yet its stock trades at about 11.8 times projected earnings, a significant discount to the average bank. The stock has been hurt by poor initial returns from some thrift acquisitions, starting three years ago in Florida, he said. But now those businesses have been converted into "more banklike operations" that will contribute 12% to 13% to annual earnings growth for Amsouth, he said.

Mr. Mason is bullish on the sector, especially southern banks, even though he says the Fed may ratchet interest rates slightly higher this year. "Slowing the economy is not a bad thing," Mr. Mason said. "I think most people look through to the other side" of the rate tightening. "If you see national consolidation of banks continuing, then some day within two, three, or four years, banks in the South are much more likely to be bought than in the Northeast," he said.

Among Mr. Mason's favorite stocks are NationsBank Corp. and First Union Corp., major players that probably won't be bought out. He also likes midsize banks with takeover potential, including CCB Financial Corp., Southern National Corp., and South Trust Corp.

In trading Friday, stocks generally reversed their slide on a report that the producer price index fell by 0.4% in February.

Some investors apparently concluded that fears of a rate hike, brought on by reports of unexpectedly strong February retail sales and low jobless claims, were probably overblown.

"The majority view may be for a tightening, but it's certainly a small majority," Anthony Crescenzi, chief bond market strategist at Miller Tabak Hirsch & Co., told Dow Jones. Although shares of industrial companies soared, interest rate jitters continued to affect trading of bank shares.

Most of the 50 largest banks' shares changed only fractionally, despite some sentiment that the selloff Thursday had created a buying opportunity.

"I'd certainly be accumulating right now," said bank analyst George Salem of Gerard Klauer Mattison & Co.

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