Bank stocks continued their slide Thursday as investors fretted over weaker earnings and fresh reminders of the relationship between banks and hedge funds.

The day dawned with Bankers Trust Corp. revealing in a filing to the Securities and Exchange Commission that it has loaned $850 million to hedge funds secured by cash or U.S. Treasury securities. Beyond that, the banking company said, it has made "approximately $25 million" of unsecured loans to these high-risk investment vehicles.

Bankers Trust became the second U.S. banking company to quantify its exposure to hedge funds. Earlier in the week Chase Manhattan Corp. said it has loaned them $3.2 billion, about three-quarters of which is backed by cash and Treasury notes; most of the rest is unsecured or backed by corporate paper.

Later in the day BankAmerica Corp. chief Hugh L. McColl said his company's hedge fund exposure is "below $300 million." Its shares closed the day up 25 cents, to $53.75.

But Bankers Trust's disclosure failed to cheer investors. Shares in the company closed the day down $3.9375, to $55.0625. The stock now trades at 60% off its April peak of $136.3125.

Investors are in no mood to give any bank the benefit of the doubt, market watchers said. In particular, they are braced for bad news from any company that relies on markets abroad for any significant portion of its profits.

Merrill Lynch & Co. market strategist Walter Murphy said the market, which has fallen 20% from its high, could drop another 5% before leveling off.

Most players said the market was disappointed that the Federal Reserve failed to cut interest rates more than it did on Tuesday.

"The market is perceiving that the Fed's rate cut is not enough to mend a financial system that's crippled," said Michael Mayo, bank analyst at Credit Suisse First Boston. "A contagion, which started in Asia and spread to Russia and Latin America, may spread to hedge funds and other lending areas."

For the day, the Dow Jones industrial average fell 210.35 points, to 7,632.27, a 2.7% decline. The Standard & Poor's bank index fell 3.2%.

Besides Bankers Trust, shares in money-center banking companies Chase, Citicorp, and J.P. Morgan & Co., as well as BankBoston Corp., had bad days.

Investor fears of more unsettling news from an international banking company were realized when ING Group, the Dutch banking and insurance conglomerate, warned Thursday that 1998 profits would grow only half as much as it had forecast.

The company said it has decided "to drastically reduce" its emerging markets proprietary trading activities.

ING, which bought the Wall Street investment bank Furman Selz last year for $600 million, said corporate and investment banking profits from emerging markets are expected to be about $794 million less than estimated. The company expects to report a net profit for the year of about $2.96 billion. ING shares on the New York Stock Exchange fell 15.2%, to $37.1875.

Not even soothing words from Federal Reserve Chairman Alan Greenspan could turn the market around. The decline gathered momentum as he testified before Congress on the central bank's decision to organize what amounted to a takeover of Long-Term Capital Management LP by its creditors last week.

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