Banks stocks surged higher Tuesday despite rising concerns about inflation and interest rate hikes.

The American Banker index of the 50 largest banks rose 2.92%, and its index of 225 banks rose 4.04%.

Gainers included Chase Manhattan Corp., $3.3125, or 4.43%, to $78.0625; Bank of America Corp., $1.9375, or $3.76%, to $53.4375; and Detroit-based Comerica Inc., $1.8125, or 4.14%, to $45.5625.

Traders said that investors are displaying a growing appetite for Old Economy stocks because of uncertainties in the technology sector. On Monday, tech shares were routed on speculation that the government would break up software giant Microsoft Corp. to remedy its anti-trust violations.

"Old Economy stocks have gained favor," a trader said, "and financials are certainly viewed as an inexpensive sector of the market and have been viewed as a safe haven for money."

Investors also continue to feel good about earnings, the trader said. Banking companies for the most part reported solid earnings, which were buoyed in some cases by strong market-sensitive revenues.

Bank stocks shrugged off the interest rate jitters that crept back into the market after the release of economic data suggesting that inflation could become a problem. Home resales rose 1.5% in March, to an annual rate of 4.83 million, according to the National Association of Realtors.

And hawkish comments by Fed Governor Edward W. Kelley and by J. Alfred Broaddus Jr., president of the Richmond Federal Reserve Bank, heightened fears that Fed policymakers would raise interest rates as much as 50 basis points at their May meeting.

Policymakers have raised interest rates five times since last June, each time in a 25-basis-point increment.

"There is no doubt that they will do at least 25 basis points," said Scott J. Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. "The Federal Open Market Committee is still split. The hawks want to raise rates right away, and Alan Greenspan has pledged to a more gradual approach. But by the time we get to the May Federal Open Market Committee meeting, we will have had a new set of economic data, and that will tell the tale."

Banks also got a boost as Warburg Dillon Read rolled out coverage of 40 banking companies Tuesday morning. Analysts Diane Glossman, Michael Plodwick, and David Patten left Lehman Brothers for Warburg last week.

The company's "strong buys" are Bank of New York Co., Citigroup Inc., Cincinnati-based Fifth Third Corp., Milwaukee-based Firstar Corp., FleetBoston Financial Corp., and Pittsburgh-based based Mellon Financial Corp.

"We rated these companies strong buys because we like companies that have top-line-oriented revenue growth, which should lead to superior earnings per share growth," said Mr. Plodwick. "Merger-related synergies were strong in the case of Firstar and FleetBoston."

Among major banking companies getting "buy" ratings from Warburg were: Chase, Bank of America, First Union Corp., PNC Financial Services Group, SunTrust Banks Inc., U.S. Bancorp, and Wells Fargo & Co.

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