Wall Street's bearishness hit banks with a vengeance Tuesday.

The latest round of selling was set off by First Union Corp.'s announcement that earnings will not meet reduced expectations. The Charlotte, N.C., company's stock plunged $4.375, to $45.5625.

A wave of late-afternoon selling on interest rate concerns sent banks and other stocks lower.

For a second straight day, large banks' stocks ran far behind the market's pace and by day's end were badly pounded, raising the possibility that market sentiment has turned decidedly for the worse.

On Monday investors were unnerved by a "sell" rating for major bank stocks on worries about year-2000 computer problems. Last week interest rate worries sparked volatility.

The Standard & Poor's bank index fell 3.53% Tuesday, and the Nasdaq bank index dropped 1.00%. The S&P 500 was off 1.70%, and the Dow Jones industrial average 1.16%.

First Union shares have gone from one end of the spectrum to the other. Last year they were among the best performers in the sector, with an 18.7% gain. But this year the stock is already down 25%.

Amid the commotion in the bank stock arena, some in the investment community raised caution flags, but others offered reassurances that the storm will pass.

Several analysts reacted to First Union's announcement with downgrades.

Philadelphia-based Janney Montgomery Scott dropped it to "sell," from "accumulate." A.G. Edwards of St. Louis and Raymond James & Associates of St. Petersburg, Fla., both cut their ratings to "neutral," from "buy."

The timing "couldn't have been worse," said Nancy A. Bush of Ryan, Beck & Co. in Livingston, N.J., given that the day before Michael L. Mayo of Credit Suisse First Boston in New York issued his downgrades on Y2K concerns.

"This plays into the whole mentality that the market is falling apart," Ms. Bush said. "Traders I talked with said right now there are no buyers for bank stocks. People will likely sit back and see what happens with the economy."

"You'll see some shares drift downward as investors digest the latest round of news," said Tobias Moskowitz, finance professor at the University of Chicago.

"Clearly, the market is less enthusiastic about the group than it was 18 months ago," said Ben Crabtree, a banking analyst at George K. Baum Co.

But there were some more upbeat market watchers. Merrill Lynch Global Securities reaffirmed First Union as a near-term buy and held a morning meeting with traders to talk up the value of bank stocks in general.

"We're not calling for a rally," said Merrill Lynch analyst William Katz, "but we said that certain large cap and regionals are attractive."

Banks are strategically well positioned, with good growth plans, profitability, and product offerings, Mr. Katz said.

Among others taking the sunnier view, Bank of America Securities talked up Chase Manhattan Corp. and Citigroup Inc. Lehman Brothers also said it believes banks have considerable upside opportunity.

Some market veterans said the mixed signals will only add to general uncertainty in the market. "We're in a period where it's not a strong stock market or a weak one," said Thomas K. Brown, a principal at Tiger Asset Management.

"The market will differentiate among companies that deliver earnings. Those companies will be rewarded," he said.

Tuesday's selling wave washed over shares of the largest banks. Chase Manhattan Corp. was off $2.0625, to $73.8125; Bank One Corp. $2.9375, to $55.5625; and J.P. Morgan $3.6875, to $133.0625.

There was also weakness among major regionals. BankBoston Corp. was down $1.75, to $45, and Mellon Bank Corp. $1.0625, to $33.5625.

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