Stocks: Bank Index Rebounds By 1.67%, Outpacing Nervous Stock Market

Bank stocks sprang back to life Monday and recouped some of the losses suffered in last Friday's precipitous decline.

The Standard & Poor's bank index rose 1.67%, outpacing the Dow Jones industrial average, which rose 0.38%

The Nasdaq bank index rose 0.52%, and the S&P 500 rose 0.37%

Some of the biggest gainers of the day included Republic New York Corp., up $3.93 to $113.25, Citicorp, which rose $2.25 to $136.25, and J.P. Morgan & Co., up $2.75 to $113.437.

Smith Barney raised its target price on Chase Manhattan Corp. to $140 from $125. Chase's shares rose $1.312 to $108.75.

"Banks that sold off the most are the ones gaining today," said bank analyst Katrina Blecher of Gruntal & Co. "Some of that selloff was profit taking; but it was also because people were spooked."

Traders said that anxiety still courses through the market-particularly with the latest readings of the producer price index due Wednesday and the consumer price index on Thursday.

"People are squaring up their positions before the numbers come out," said one trader, referring to the indexes. "And now that we are through earnings, a lot more people will be focusing on interest rates again."

The trader added: "Bank stocks are going to start moving in lockstep with the (30-year Treasury) bond. Where the long bond goes, bank stocks will trade."

Industry analyst Richard X. Bove of Raymond James & Associates, St. Petersburg, Fla., said that Friday's decline in bank stocks could herald a larger correction in the future.

"It is clear that bank stocks have not risen on improving fundamentals but rather on trading perceptions," said Mr. Bove. "Now perceptions about common stocks are changing."

Mr. Bove said the market is reacting nervously to the rising trade deficit and conveying investors' skepticism about the balanced budget agreement.

"Two big factors that drove the market up are now being questioned," said Mr. Bove. "And until the market can feel convinced about either, bank stocks will be in rocky territory."

Furthermore, bank stock fundamentals are eroding, said Mr. Bove. "Loan- loss reserves have gone up, liquidity has been used up, efficiency ratios are going down, and (stock) buyback programs are also on the decline," he said.

Nevertheless, most analysts shrugged off Friday's decline as an aberration.

"Bank stocks still have their interest rate disease, which frankly offered a lot of buying opportunity," said bank analyst Robert B. Albertson of Goldman Sachs & Co. "They will be vulnerable to interest rate fears for a few months, but ultimately their double-digit revenue will carry them forward." u

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