Shares of banks with strong capital markets businesses rallied for a second day Wednesday, as investors continued to react to a strong earnings report by Merrill Lynch & Co.

Shares of J.P. Morgan & Co., which have long behaved more like those of an investment bank than of a commercial bank, rose 6.19% to $123.375, after staying flat at $116.1875 Tuesday, when Merrill announced that its fourth-quarter profit had doubled from 1998, to $764 million.

The Dow Jones industrial average - of which J.P. Morgan is a component - rose only 0.03%. Meanwhile, the American Banker index of the 50 largest banks rose 3.77%. Traders said interest rate worries were receding, and that some investors were ditching technology stocks in favor of more traditional companies, giving banks a further boost.

Still much of the attention was on banks with investment banking operations.

"Banks that have strong investment banking or capital market capabilities are being boosted," said Andy Collins, an analyst at ING Barings. "The capital markets players continue to perform better than those old-minded kind of banks, which will continue to have interest rate-related woes."

Indeed, the biggest gainers of the day included Citigroup, up $2.0625, or 3.69%, to $57.9375; Bank of America Corp., $2, or 4.43%, to $47.125; Chase Manhattan Corp., $3.875, or 5.19%, to $78.50; and Bank of New York Corp., known for securities processing, $3.125, or 8.61%, to $39.4375.

Bank stocks could also be benefiting from investors' rotation out of the technology stocks, said Mr. Collins. The Nasdaq, which is comprised largely of technology companies, fell 2.33%.

At the same time, the yield on the benchmark 30-year bond - which tends moves in the opposite direction of bank stocks - fell to 6.586%.

The market expects the Federal Reserve to raise interest rates by only 25 basis points as opposed to 50 basis points, said some traders.

"There has been a little relief in the bond market," said Frank Barkocy, a senior analyst at Keefe Managers. "However, we have seen several head fakes when it comes to rallies in bank stocks. We will see a sustained rally in the group, only until we get a clearer picture of the rate environment - which might take some more months."

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