Bank stocks Wednesday endured their largest single-day decline this year as concern about higher interest rates resurfaced and led fearful investors to dump shares.

The Standard & Poor's bank index, which only last week tallied its best gain ever, plummeted 3.11%, far worse than the 1.93% drop in the Dow Jones industrial average. The broad-market S&P 500 stock index fell 1.47%

Market sources said investors had stampeded for the exits after new 10- year Treasury notes met with tepid demand Wednesday. Traders said the demand Tuesday for three-year Treasuries was just as poor.

"Momentum investors may have noticed a lull in the upward movement of bank stocks and reduced exposure" in light of bond market developments and the recent strength of bank stocks, said bank analyst Michael L. Mayo of Credit Suisse First Boston Inc.

Most banking industry analysts discourage investors from buying the stocks of banks solely because they may become takeover targets.

However, analyst Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp. told investors to do just that Wednesday.

"Now is a good time to play a good portfolio of takeover targets," the analyst asserted at a conference for clients. "Regional banks are behind the curve, and that will cause a rash of bank acquisitions."

Mr. Brown said he believes that most banks are persisting in outmoded marketing practices and will inevitably be outpaced by a coterie of banks that employ advanced, information-based marketing.

"I've jumped on the Tom Hanley bandwagon and for the first time come up with a takeout list of my own," Mr. Brown said, referring to Thomas H. Hanley, the veteran bank analyst at UBS Securities Inc. Among the companies on Mr. Brown's list are Fleet Financial Inc., Firstar Corp., Mellon Bank Corp., and Signet Banking Corp.

And while strong superregional banking companies like Wachovia Corp. and SunTrust Banks Inc. excelled at risk management and capital management in the 1970s and 1980s, Mr. Brown contended that "those skills will not be enough now for them to survive."

The sometimes controversial analyst pointed out that Mellon's chief executive, Frank V. Cahouet, is to retire in 1998 and has not yet anointed a successor, suggesting a sale is possible. Mr. Brown said he thinks NationsBank Corp. could be a potential acquirer.

The analyst said banks that have embraced information-based marketing have the vital ability to pinpoint their most profitable customers and target efforts to retain them.

Mr. Brown was blunt about the wasted marketing activities he believes are commonplace in banking.

"Sixty percent to 75% of cross-sells are unprofitable," the analyst said, referring to the practice of selling a customer for one product additional products or services. "And 60% to 80% of employee time is being spent with customers that have 20% of the profit potential."

Mr. Brown lauded Wells Fargo & Co., San Francisco, as a bank that has charged ahead with its information-based marketing. He pooh-poohed recent weakness in its stock on merger concerns, saying, "We should be glad we can buy that stock at depressed valuations on earnings weakness."

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