Bank merger rumors took on an international flavor last week, with investors bidding up shares of J.P. Morgan & Co. and PaineWebber Inc. on the prospect they would be acquired by German banks.

Analysts said they were dubious about an imminent merger deal in either case, but acknowledged there were bona fide reasons for investors to believe the deals might occur.

The rumor that Dresdner Bank would buy PaineWebber took off Wednesday after Dresdner's chief financial officer Bernd Voss announced at an analysts' meeting in Frankfurt that the company was in concrete talks with companies in Germany, Europe, and the United States.

Bank analyst Olaf Conrad of Morgan Stanley, Dean Witter & Co. in London noted that Allianz, the huge German insurance firm that has a 22% stake in Dresdner, would help with the acquisition deal.

"It is no secret that Dresdner wants to make an acquisition," said Mr. Conrad. "It is well known that they were in talks, with Donaldson, Lufkin & Jenrette as their favorite candidate. PaineWebber clearly is a second-best solution."

J.P. Morgan's stock shot up Friday on a Business Week report that the venerable New York company was in talks with a large European bank.

Though shares of J.P. Morgan skyrocketed on the report that it was holding out for $200 a share, several observers dismissed such a deal as less plausible than the PaineWebber rumor.

Like Morgan, Deutsche Bank has been struggling with profitability and is in the midst of restructuring. It is not likely to remove its focus from that, said analysts.

In any event, merger rumors could not keep a bank stock rally from sputtering out Friday as investors continued to fret about global economic trouble spots.

Morgan's shares remained strong, finishing the day up $9.625 to $126.875. But the Standard & Poor's bank index fell 1.34%, while the Dow Jones industrial average rose 0.41%. The Nasdaq bank index fell 0.53%, and the S&P 500 rose 1.13%.

"Banks are struggling because overseas markets are selling off," said one trader. "If we close on a downside today, we could be in trouble next week."

With many of the biggest U.S. acquirers preoccupied with closing deals, speculation rose that the next big deal might be by an overseas acquirer. And German banks are at the center of much of the talk.

The United States is regarded by the major German banks as crucial to having a global network operation in investment banking, said Mr. Conrad. "If you want to be called a global bank, you have to have a strong presence in the U.S."

Lawrence W. Cohn, research director at Ryan, Beck & Co., Livingston, N.J., said there are reasons for J.P. Morgan to sell.

"Obviously management has confronted or thought about the possibility of being acquired," he said. "Their fundamental returns have not kept up with the competition, their returns compared with other banks have lagged, and if you look at the high-quality investment banks (Morgan) is just not in the same ball park."

"Having said that, I don't think management is really ready to throw in the towel and I don't think the shareholder base is so restive that they are putting a large amount of pressure on management to sell," he added.

European bank analyst Matthew Czepliewicz at Salomon Smith Barney said he was confident a deal could happen.

"I would not be surprised if the two had serious discussions," the analyst said of J.P. Morgan and Deutsche Bank. A number of senior executives have recently left Deutsche Bank, which has "probably added to the urgency of the bank to address its investment banking gaps."

Mr. Czepliewicz added that the deal on "paper is a reasonably good fit, although the implementation would be difficult and bloody," considering the overlap with both companies.

Separately, speculation that Interstate/Johnson Lane, Charlotte, N.C., was on the auction block sent the regional brokerage's shares up 5.81%.

Market experts said Wachovia Corp. would be a likely buyer.

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