Friday's roller-coaster rally in banks and other stocks capped a hair- raising week of volatility on Wall Street.

The Standard & Poor's bank index advanced 1.17 to 544.86, while the S&P 500 broad market index rose 3.61 to 887.29. The Dow Jones industrial average of 30 blue chip stocks soared more than 100 points at midday, but ended trading at 7,687.72, up just 33.47.

Nasdaq banks gained slightly more than the other stocks, rising 8.9 points to 1,618.9, a 0.55% increase.

"Low inflation is a very powerful catalyst" for stocks in general and banks in particular, said bank analyst George Bicher of Alex. Brown, Baltimore.

While the Federal Reserve's monetary policymakers meet Tuesday to mull interest rates, few analysts or economists expect a hike.

But there are some signs that the nation's economy may not have slowed enough to prevent the Fed from tightening rates at its next scheduled session, on Aug. 19, said Nicholas Perna, chief economist at Fleet Financial Group.

Mr. Perna and some others worry about the market's reaction if rates do go higher. "No one wants to miss the last nickel in the stock market," he said, but observed "We've had a long string of sunny days. At some point it rains."

When the downturn comes, "we don't know how investors will react," he said. "Most of the fund managers of today were playing with Mr. Potato Head in 1987," when the market lost 500 points in one day.

In the current environment, bank stock analysts are seeking value investments.

Wayne R. Bopp, banking analyst at Robert W. Baird & Co., Milwaukee, started coverage of First Midwest Bancorp with a "buy." With the second largest share of market in three of Chicago's most affluent suburbs, Mr. Bopp said the bank is "a quality company for growth and income oriented investors."

He expects the stock to hit $37 per share in 12 months. In trading on Friday, First Midwest reached $31.625, a 25 cent gain.

Mr. Bopp called Chicago "a very attractive banking market." Of the 20 largest metropolitan areas in the country, it is the least consolidated, allowing midsize franchises to continue to expand through acquisitions. First Midwest recently announced its intention to buy nearby $454 million- asset McHenry State Bank.

Elsewhere, Dillon Read & Co.'s new bank analyst, Anthony R. Davis initiated coverage of three Southern banks-Compass Bancshares at "neutral" and SouthTrust Corp. and Barnett Banks Inc. at "outperform" ratings.

He set a 12 to 18 month share-price target of $37 for Compass, whose stock price reached $35.18 in trading on Friday, $47 for SouthTrust, which ended the day at $41.75, a 62 cent gain, and $60 for Barnett, which slipped $1.31 to $52.

Mr. Bicher of Alex. Brown cut his rating NationsBank Corp. to "market perform" from "buy" on Friday, saying the Charlotte-based company is trading at 13 times 1998 estimated earnings and he "wonders how it will outperform the group."

Meanwhile, investors apparently reacted to rumors of the bank's possible purchase of Montgomery Securities, San Francisco. NationsBank shares lost $1.37, finishing at $65.25, after dropping $1 on Thursday.

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