Bank stocks broke out of their doldrums Tuesday, rallying amid overall market apathy and fresh weakness in bond prices.
The Standard & Poor's bank index climbed 0.49%, outpacing the Dow Jones industrial average, which fell 0.35%. The Nasdaq bank index fell 0.14%, and the S&P 500 rose 0.19%.
"The market has been on a yo-yo all day," said bank analyst Frank J. Barkocy of Josephthal & Co. Nevertheless, he noted, "Bank stocks have been among the strongest sectors today."
The sudden show of strength was unexpected. Most banking issues have been under pressure since the Memorial Day weekend. In addition, they usually face tough sledding when bond prices fall because of concerns about higher interest rates.
In the bond market, fixed-income prices dipped after the Commerce Department announced that sales of single-family homes rose a record 5.2% in April. The report confirmed the economy's hot expansion pace and raised fresh fears that the Federal Reserve will have to tighten credit to forestall inflation.
Among bank stocks, however, lower prices and continuing strong fundamentals brought out bargain hunters. Wall Street analysts also lifted their recommendations on several banks.
Industry analyst Michael L. Mayo of Credit Suisse First Boston said he added the "new BankAmerica" to the brokerage firm's "focus list" because it looks cheap on the basis of new analysis.
"The company has moved ahead faster on major decisions than expected," Mr. Mayo said. Those decisions include a new management and the sale of brokerage Robertson Stephenson. BankAmerica's shares rose 12.5 cents, to $82.50.
Keefe, Bruyette & Woods Inc. upgraded Mellon Bank Corp. and MBNA Corp. to "buy," from "attractive." The price target for Mellon was raised to $83, from $80, and the 1998 and 1999 earnings estimates for MBNA were unchanged. Shares of Mellon fell 68.75 cents, to $67; MBNA's stock climbed 37.5 cents, to $31.8125.
Meanwhile, shares of $1.3 billion Independent Bank Corp., Rockland, Mass., slid more than 8% during midday trading after bank analyst Joseph Polini of Advest Inc. cut the company's recommendation to "market underperform," from "buy."
The downgrading, wrote Mr. Polini in a note to clients, "is due to price appreciation. The company's shares were up 17% on speculation Monday," he pointed out. "In our opinion, the risk-reward profile is unattractive," the analyst said. Independent's shares fell $1.625, to $20.125.