Analyst George Salem of Gerard Klauer Mattison & Co. Monday raised his earnings estimates on Chase Manhattan Corp. and reiterated his "buy" rating, arguing the shares are undervalued in comparison to its peers.

Mr. Salem, who raised his 1998 earnings estimate to $10.20 a share, from $10, said Chase's price-to-earnings ratio was 20% less than the average for its peers, and investors could profit as the gap narrows. Chase's stock price fell 37.5 cents Monday, during a broad market decline, to close at $88.75.

Mr. Salem said cost savings and revenues from the bank's 1996 merger with Chemical Banking Corp. were better than expected. He said management's image and reputation "have risen materially" as a result.

"The merger has produced a world-class, full-service banking company with high market shares in most of its businesses," Mr. Salem said. "1997 should be a catch-up, high-performance year for the stock."

Other analysts also praised the New York money-center, saying investors have underestimated the company, worrying too much about its rate-sensitive stream of revenues.

Analyst Joel Silverstein of Deutsche Morgan Grenfell, who also recommends the stock, said that although Chase was one of banking's best performers in 1996, "there is still plenty of upside in the stock."

Mr. Silverstein estimated that Chase would earn $8.40 per share in 1997 and $9.65 in 1998.

Analyst Robert Albertson of Goldman, Sachs & Co. added that "investors are still unsure about the potential success in revenue generation." His earnings per share estimates for the bank are $8.40 for this year and $9.55 for 1998.

In trading Monday, the S&P bank index lost 0.09%, to 473.05, while the smaller stocks on the Nasdaq bank index lost 0.27%, to 1321.8. Meanwhile, the Dow Jones industrial average lost 0.53%, to close at 6,660.69.

Some big banks made gains. J.P. Morgan & Co. was up 62.5 cents, to $102.875, while BankAmerica shares rose 50 cents, to $106.

Analyst Frank Barkocy of Josephthal, Lyons & Ross said that, after a good run during earnings season and benign economic news, most bank stocks were on "hiatus" as investors await the next economic news.

"I have expectations that the fundamentals will continue to look very attractive in coming quarters," he said. "It's a good time to pick and choose those with the best upside opportunities."

Mr. Barkocy's favorites include Fleet Financial Group Inc. and Hubco Inc.

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