The rate-sensitive bank stocks were hit hard by Friday's surprisingly strong employment report from the Labor Department, which showed payrolls gaining 705,000 jobs in February after a January loss of 201,000.

The Standard & Poor's bank index closed down 3.94%, amid a massive selloff in the market. The Standard & Poor's 500 fell 3.08%, and the Dow Jones industrial average declined 171.24 to 5470.45, a 3.04% drop.

Chase Manhattan Corp.'s shares dropped 4.34%, falling $3.125 to $68.875. Mellon Bank Corp. lost 9.29%, dropping $5.25 to $51.25.

Even the high-flying Fifth Third Bancorp, up 15% since being included in the S&P 500 index after the close of trading March 1, dropped $2 to $56.625.

Among credit card issuers, MBNA Corp. fell 8.06%, or $2.50 to $28.50. First USA Inc. fell 7.49%, or $4.25 to $52.50.

The gains in bank stocks during the past 18 months have made the sector ripe for a correction, analysts said.

"In all likelihood, the stocks could have pulled back something on this order, even without problems in the bond market," said Moshe Orenbuch, a bank analyst at Sanford C. Bernstein & Co.

"The probability of a rate cut is very low," said Roseann M. Cahn, chief economist in the equity research group at CS First Boston Inc. The economic data are conflicting at this point, she said, and "the Fed won't ease while there is that kind of ambiguity."

"This doesn't preclude some further small easing in May," said Nicholas S. Perna, chief economist at Fleet Financial Group.

Mr. Perna said that if, among other factors, the consumer price index due out next week is relatively benign, the "Fed would have every reason to ease."

While the market's initial reaction to a stronger than expected jobs report was negative, bank analysts said the net effect of slightly higher or flat rates could benefit banks in the longer term.

"It's probably better for bank margins if we see an uptrend in the rate environment going forward," said Anthony R. Davis, a bank analyst at PaineWebber Inc. "If rates were to soften from here, spreads would get compressed."

Higher employment "has to be a positive" for bank stocks, said Tom Maier, a bank analyst at Everen Securities. "We'd rather have more people at work than fewer."

Mr. Maier also said an improving economy has positive implications for consumer loan delinquencies.

"If the economy is strong, loan demand and the demand for other financial products will continue to be strong, which would help on the revenue side," Mr. Maier said.

If investors adjust to a different rate environment, "we could see a nice opportunity to play the group rise again," Mr. Davis said.

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