Banks stocks rallied Monday on investors' confidence that Brazil's economic woes are being addressed and that another cut in U.S. interest rates could be just two weeks away.

On Friday, the Group of Seven major industrial countries endorsed a $90 billion Brazilian economic remodeling plan. Brazil's problems have raised concerns, because they could potentially infect the U.S. financial system.

"News that Brazil will be protected is good, because a severe downturn in Brazil's economy would effect us a great deal," said analyst Joan T. Goodman at the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp.

Investors are also anticipating that the Federal Reserve will ease short-term interest rates further at its next monetary policy meeting on Nov. 17.

The Fed has already cut short-term interest rates twice since Sept. 29, spurring a rally in bank stocks. Lowering interest rates steepens the yield curve, which creates a more favorable environment for banks' profitability.

Nevertheless, bank stocks lagged the rest of the market amid nagging skepticism about economic troubles overseas and some concerns that the rally has gathered too much steam.

The Standard & Poor's bank index rose 1.14%, while the blue-chip Dow Jones industrial average plowed forward 1.33% . The broad index S&P 500 rose 1.18%, and the Nasdaq Bank index, 0.11%.

Gainers of the day included Bank One Corp., up $1.25 to $50; National City Corp., up $1.3125 to $65.625; and Summit Bancorp, up $1.50 to $39.4375.

Many analysts continued to be cautiously optimistic.

"We have value investors returning to the market, who continue to look for companies that have little exposure to foreign economies or hedge funds," said bank analyst Frank J. Barkocy of Josephthal & Co. "We still, however, must watch the economy."

"I think we will see an interest rate cut by the end of the year," said bank analyst Eric Rothmann of Stephens & Co. "But are banks getting slightly ahead of themselves? Yes. Some of them are nearing their 52-week highs."

Economist Scott Brown of Raymond James & Associates of St. Petersburg, Fla., also suggested that investors could be overly enthusiastic.

Economic data released Monday by the Commerce Department and a business group suggested the economic outlook is something less than robust and trouble-free.

Notably, the consumer savings rate dropped below zero, and the National Association of Purchasing Management's index showed a sharp drop in manufacturing, both of which signal a softening economy.

The NAPM index fell to 48.3 in October, compared with 49.4 in September, the lowest it had been in two years. A reading below 50 reflects a soft business climate.

Mr. Brown agrees that the Fed is likely to cut interest rates-but perhaps not at the November policy meeting. "The Fed wants a better scan of our economy first," he said.

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