Bank stocks retreated Thursday as Federal Reserve Chairman Alan Greenspan repeated his concern that the economy may be overheating.

Some investors interpreted the comment as possibly signaling higher interest rates.

But as usual, Mr. Greenspan's remarks were obscure. He restated earlier warnings about the "spectacular rise in equity prices that to many has reached well beyond the justifiable." The Fed chief also said "imbalances" in the economy could cause growth to cool. He spoke at the Fed's annual bank structure conference in Chicago.

Wall Street reacted with fear that interest rates are headed higher. Bank stocks were especially hard hit because many investors believe that an upward shift in interest rates could hurt loan demand and profits.

The Standard & Poor's bank index lost 1.47% and the Dow Jones industrial average 0.08%. The Nasdaq bank index dropped 0.40% and the S&P 500 1.13%

"Of most concern is how long this remarkable period of prosperity can be extended," Mr. Greenspan said. "There are imbalances in our expansion that, unless redressed, will bring this long run of strong growth and low inflation to a close."

The comments were Mr. Greenspan's first on the economy since March 16.

"The general tone was a bit tougher than comments he's made in the recent past," said Scott J. Brown, senior economist at Raymond James & Associates. "There is some sense of unease about the strong pace of growth and the prospect that inflationary pressures might surface."

Bank of America Corp. fell $1.4375, to $69.50; Chase Manhattan Corp. $2.625, to $77.5625; and Citigroup $2.75, to $70.

Shares of J.P. Morgan & Co. also fell $3.50 for the day, to $135.50, despite the company's upbeat comments to sell-side analysts at a dinner Tuesday. Douglas A. Warner, Morgan's chief executive, and John A. Mayer, its chief financial officer, said the company will reduce costs and cull more profit from its business lines to achieve a higher return on equity.

Judah Kraushaar, a banking analyst at Merrill Lynch Global Securities, said Morgan indicated it is becoming more efficient and that it is leveraging its equities and asset management businesses.

Later this year, Morgan "is likely to announce further reduced overhead goals for 2000," Mr. Kraushaar said. "The focus is now on continuous improvement."

Shares of St. Paul Bancorp rose 43.75 cents, to $23.875. In a proxy filing mailed to shareholders, the company resumed its defense against hedge fund manager Harry Keefe, who is urging a sale. The issue will come to a vote this summer at the company's annual meeting.

In his letter, chairman Joseph C. Scully urged shareholders to look beyond a short-term payoff and not be swayed by Mr. Keefe's gripes. "You should even expect Mr. Keefe to criticize our first-quarter achievements in his effort to win support," Mr. Scully wrote. "Do not be misled."

"We urge you to take a look at your company's first-quarter results," which show progress toward meeting stated goals, including a 15% return on equity by next year, Mr. Scully said.

"Your board remains committed to maximizing value for all St. Paul shareholders, not merely to placate Mr. Keefe seeking his own quick, short- term gain," Mr. Scully wrote.

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