As widely expected, the Federal Reserve bank declined to raise interest rates at its monetary policy meeting on Wednesday.

Analysts have been predicting that low inflation and moderating growth would keep Fed Chairman Alan Greenspan from acting, even as unemployment fell last month to 4.8%, the lowest level since 1973.

Bank stocks and other equities surged in response to the Fed news. The Standard & Poor's bank index advanced 2.22%, reaching 558.4, while the S&P 500 broad market index gained 1.46% to end the day at 904.4. The Dow Jones industrial average jumped 73.06 points, or 0.95%, to 7795.38.

"There's a lesson the investment community has to relearn every few weeks," said Anthony R. Davis of Dillon Read & Co. "We have an embedded belief that as the economic cycle matures, it ends up incurring more inflationary pressure."

But, said Mr. Davis, that's just not the case in today's economy. "Globalization and technology are having an amazing impact on productivity, particularly in banking."

Bradley Ball, a bank analyst at Credit Suisse First Boston, said, "The bond market rallied back from less than bullish (economic) news that came out on Monday, which has added some life to the bank group after Monday's selloff."

Analysts remain bullish on bank stocks, which are reveling in an economy that has not been as good for the group since the 1960s.

Shares of bank stocks trade at 70% of the overall market's price-to- earnings multiple. But Mr. Ball expects banks' average multiple to rise to 85% over time.

He cites more consistent earnings streams, better capital management, operating efficiencies, and "once in a lifetime consolidation" opportunities as having strong, positive impacts on valuations.

CS First Boston added Bankers Trust Co. to its "focus list," 35 stocks the firm recommends as outperformers. Mr. Ball said Bankers Trust is cheap compared to other bank stocks. He increased his price target to $110. Shares rose $2.375 on Wednesday, to $90.25.

Mr. Davis, who recently moved to Dillon Read from Dean Witter Reynolds, reopened coverage on Signet Banking Corp. with a "buy." He expects Summit Bancorp and Crestar Financial Corp. to "outperform" the market.

Mr. Davis anticipates Signet will hit $46 by the end of this year. The company should be "back on track in terms of earnings growth and profitability by next year," he said. If not, "there's no doubt the company will be acquired." Signet stock jumped 44 cents, to $37.25.

Gerard Cassidy, banking analyst at Tucker Anthony Inc., initiated coverage on 11 Northeast banks with a "hold."

They are: Banknorth Group Inc. and Chittenden Corp. of Burlington, Vt.; Bank of New York Co.; Vermont Financial Services Corp.; Republic New York Corp.; Independent Bank Corp. of Rockland, Mass.; Summit Bancorp; North Fork Bancorp; Wilmington Trust Corp.; Mercantile Bankshares of Baltimore; and Mellon Bank Corp.

"Valuations today are at levels we haven't witnessed in many years, if not decades," said Mr. Cassidy. "We want to analyze the second-quarter results reported by the banks in the next two weeks to see if any should be up or downgraded."

Advanta Corp. stock, which was hit hard Tuesday on news of a class action brought by shareholders, rose 62 cents Wednesday to $35.75.

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