Bank stocks continued to slide in value on Monday as investors exited the sector, fearing that last week's increase in interest rates will not be the last one.

Despite Monday's fairly soft economic statistics, bank stocks during morning trading endured one of their worst selling bouts since the Federal Reserve raised short-term rates 25 basis points last week.

The Standard & Poor's bank index fell 3.42%, while the Dow Jones industrial average shed 2.33%, and the S&P 500 declined 2.16%.

Some of the biggest losers of the days included Bankers Trust New York Corp., off $2.625 to $82, J.P. Morgan & Co., which fell $4.50 to $102.75, and BankAmerica Corp., which declined $5.125 to $100.875

"This is not a major selloff, but the market is still concerned that the Fed will increase interest rates two or three more times in the next few months," said Thomas Carpenter, chief economist at ASB Capital Management.

Economist Scott Brown at Raymond James & Associates, St. Petersburg, Fla., noted that among the economic statistics released Monday-which include the Chicago Purchasing Manager's index and personal income statistics-personal consumption expenditures were strongest.

The personal consumption numbers, which make up two-thirds of the overall economy, suggested an annual increase of around 5%. Economists have expected an increase of 2% to 2.5%

The downdraft in banks stocks prompted banking analyst Frank J. Barkocy of Josephthal Lyon & Ross Inc. to upgrade PNC Bank Corp., Norwest Corp. and KeyCorp to "buy" from "hold."

"This is a buying opportunity, an overreaction of the market to the Fed's recent raise in interest rates," Mr. Barkocy asserted. "Even if we see a few ticks upward in interest rates, bank fundamentals will continue to be strong compared to other industry sectors, and (despite) any price weakness, we suggest aggressive repositioning in these three names."

Mr. Barkocy raised his target price on KeyCorp to $59 from $54, Norwest to $55 from $52, and PNC to $46 from $43.

The veteran analyst expects bank stocks to rebound. Indeed, he anticipates that the selloff will go on for a few days longer, but reverse itself as anticipation of good first-quarter earnings takes over.

"We have seen a correction in the bank group and since they were the industry leaders they were among the first to experience the greater selloff," added Mr. Barkocy. "This creates a buying opportunity, and I am expecting a rebound in the next six to 12 months."

Other industry observers, however, are not as optimistic.

"If the interest rate environment doesn't change, banks stocks will do poorly in 1997," said Raymond James banking industry analyst Richard X. Bove.

Mr. Bove said that the current selloff in bank stocks is due to investors focusing too much on the negative impact of interest rates, instead of the upward trend of bank earnings.

"People who invest in bank stock couldn't care less about earnings; they are looking at changes in interest rates on the price earnngs multiple," said Mr. Bove, adding that investors reacted similarly in 1994.

In spite of his view, Mr. Bove is not telling clients to sell or even minimize their position in banks stocks.

"We are staying the course," said Mr. Bove. "We will not pull our recommendations until we see a fundamental deterioration in bank stocks, and we are not seeing that."

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