Bank stocks posted another strong showing Thursday, fueled by favorable economic news.
In a sign that interest rates are less likely to rise, the government said labor costs rose less than expected in the first quarter.
The Labor Department's employment cost index, cited by Federal Reserve Chairman Alan Greenspan as a guide to inflationary expectations, advanced just 0.4% in the first quarter and 3% from a year earlier.
Market watchers said banks have also benefited as investors shuffled their investment priorities, engaging in the "sector rotation" widely anticipated by Wall Street analysts.
"We're seeing money leaving Internet stocks, and some of it could be finding its way to financials," said Robert Becker, a banking analyst at Argus Research.
He said the outlook for the banking sector "continues to be very good."
"We had a great first quarter, and growth prospects remain favorable," he said. "The economy is rolling along, and there is strong credit demand. It's likely to remain that way for most of the year."
With bank shares' gains Thursday, they have advanced in two of the past three days, some sharply.
Citigroup was up $1.9375, to $76.3125; Chase Manhattan Corp. 18.75 cents, to $83.875; and J.P. Morgan & Co. $2.1875, to $138.
Among regionals, First Union Corp. was up 43.75 cents, to $55.21875; and KeyCorp 68.75 cents, to $30.75. But Mellon Bank Corp. lost 37.5 cents, to $74.375.
Mr. Becker said he likes Fleet Financial Group, calling it "a very well managed superregional."
"Fleet has done a tremendous job of expanding the noninterest income half of their income statement," Mr. Becker said.
At the same time, Fleet has prudently managed loan growth, he said. "In the core business of lending, Fleet has extended credit without taking on any more risk than it should in one sector."
Fleet's shares rose 6.25 cents, to $44.625.
Shares of Texas' Cullen/Frost Bankers dropped 75 cents, to $53.3125. The company plans to buy back up to $100 million of stock in the next two years, or about 7% of its outstanding shares.
The stock will also split 2-for-1 on June 30.
"We believe these are very bullish indications from the company for future profitability and subsequent valuation," said William Katz, a banking analyst at Merrill Lynch & Co.
The moves also illustrate Cullen Frost's sharp focus on boosting shareholder value, Mr. Katz said.
The San Antonio banking company is improving operations through better balance sheet efficiency, stronger operating leverage, and an increasingly potent business mix, Mr. Katz said.
"Cullen Frost is increasingly differentiating itself from the typical midcap regional bank," Mr. Katz said.
With its sizable Texas operations, the company could be appealing as a takeover target, he added.
Shares of Fulton Financial Corp. lost 6.25 cents, to $23.6875, after positive comments from Fred A. Cummings, a banking analyst at McDonald Investments in Cleveland.
The Lancaster, Pa., banking company "has one of the most focused strategies in our mid-cap universe-to enhance shareholder value through meaningful acquisitions," Mr. Cummings said.
Fulton Financial has completed 12 purchases since 1989 and expanded its loan portfolio at an 8% compound annual rate. "The focused strategy has allowed Fulton to produce very consistent earnings," Mr. Cummings said.
He cited strong underwriting practices, a relatively stable net interest margin, and effective cost controls as contributing to positive results.