Shares of Chemical Banking Corp. rose about 2% on Tuesday after an investment upgrade by Donaldson, Lufkin & Jenrette Securities Corp.

Chemical's 75-cent gain to $36.25 came on a day when most bank stock prices were narrowly mixed, after a 2.6% plunge on Monday.

Frank DeSantis of Donaldson Lufkin upgraded Chemical to "very attractive" from "neutral," citing the company's better--than--expected progress in controlling expenses and the stock's attractive valuation and yield

Approaching 'Buying Range'

"The price is 15% lower than January," Mr. DeSantis said. "The stock trades at 106% of book value and has a 3.7% yield. "It looks like it's coming to a buying range."

He added that Chemical's first--quarter expenses met its expectations for the first time in a year. This increases the likelihood that Chemical will meet earnings expectations, he said.

Mr. DeSantis said he expects Chemical's expenses, excluding costs for foreclosed real estate will be down year-over-year in the second quarter.

He forecast Chemical will earn $4.80 a share in 1993 and $4.60 in 1994. That compares with $3.90 posted for 1992.

Bullish Consensus

Other analyst are equally bullish on Chemical.

"My feeling is that the company is doing a good job in cost cutting and costs will be flattish," said Ronald I. Mandle of Sanford C. Bernstein & Co.

The analyst rates Chemical as an "outperform."

"We'll see credit costs come down over the next 12 to 18 months," he added.

Other banks posted moderate gains or fell slightly on Tuesday.

Wells Fargo & Co., which lost $5.25 on Monday, rose 75 cents to $96.50.

Other gainers included First Fidelity Bancorp., up 75 cents to $43.625; PNC Bank Corp., also up 75 cents to $30.50; and Chase Manhattan Corp., up 62.5 cents to $29.25.

Among the losers were Bank-America Corp., off 75 cents to $41.25; Comerica Inc., off 62.5 cents to $27.75; and First Bank Systems, down 50 cents to $26.25. BankAmerica was the most actively traded stock on the New York Stock Exchange, with 3.7 million shares changing hands.

Opportunistic Buying

Analysts said bank stock prices are likely to hold steady until at least Friday, when the government announces the May Produces Price Index.

Analysts attributed Tuesday's uptick to opportunistic buying by investors who think the recent selling in bank stocks was overdone.

"The selling was irrational, emotional, and excessive," said George Salem of Prudential Securities Inc.

He attributed Monday's big drop to continuing concerns that rising interest rates and slack loan demand will have a negative impact on bank earnings.

But analysts also suggested that banks stocks have by now probably discounted the impact of any rise in rates.

Mr. DeSantis said the market has already discounted more Federal Reserve tightening than is likely to happen.

Meanwhile, two top U.S. bankers, speaking at a conference in Stockholm, dismissed fears that an upturn in short-term U.S. interest rates would seriously erode bank earnings.

Walter Shipley, president of Chemical and Frank Cahouet. chairman at Mellon Bank Corp., told Reuters that such fears were overblown.

"There will be very little impact on the net interest revenue of the banks," Mr. Cahouet said. The effect of any rate rise "is of more concern to the stock market than to the banks," he added.

Interest rates continued to rise on Tuesday, with the yield on the 30--year Treasury bond rising to 6.91% from 6.87% on Monday.

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