Bank stocks, bonds, and other stocks nosedived on Wednesday after Federal Reserve chairman Alan Greenspan cast doubt on future interest rate reductions.

The markets recaptured some ground later in the volatile session, but endured serious losses from what appears to be a growing case of second- half jitters. The Dow Jones industrial average fell by as much as 134.19 points before recovering to 4,628.87, off 57.41 for the day.

Among major banks, Mellon Bank Corp. fell $1 to $42.75, Bankers Trust New York Corp. $1.50 to $62, First Chicago Corp. $1.75 to $60.25, and Bank of New York Co. 87.5 cents to $32.75.

In testimony to Congress, Mr. Greenspan said the nation's economy may be beyond the "maximum risk" of recession, but he also termed the rebound from current weakness as "tentative." (See related story on page 1.)

The Fed chairman's characterization of business conditions was apparently too ambiguous and equivocal to suit Wall Street.

For banks it was the third negative outing of the week. Their stocks appear to have lost considerable momentum after helping drive the market upward during the first half of the year.

"This has been a great group of stocks, and people are getting leery of the second-half performance of both the banks and the bond market," said Francis X. Suozzo of S.G. Warburg & Co., New York.

"There is some evidence that the economy is a little stronger than anticipated," he said. "And there is a lot less belief right now that the Federal Reserve is going to ease (credit) again soon. The banks, as financial stocks and bond market proxies, are backing up on this scenario."

Mr. Suozzo and other analysts also attribute the softness to a recurring bout of post-earnings depression.

In many past quarters, bank stock prices have advanced on the prospect of strong earnings and then fallen back, in line with the oft-cited Wall Street strategy of "buying the rumor and selling the news."

For the second quarter, earnings were good but unspectacular, with some indication of increased pressure on net interest margins. Mr. Suozzo said he thinks pressure will continue, particularly if the Fed does lower rates further.

"There are indications that pressure on margins is going to intensify. We've had loan price competition, but the pressure is now largely on deposit spreads," he said. "Lower margins and lower earnings related to banks' inability to reduce their funding costs as much as market rates are declining is one of the big risks out there.

"I think what we're seeing is a combination of profit taking and (shareholder) concerns about the second-half outlook for bonds and slightly weaker-than-expected core earnings."

Said Dennis F. Shea, banking analyst at Morgan Stanley & Co.: "Given what these stocks have done this year, a 2% (downward) move in the market doesn't bother me a great deal," he said.

Frank J. Barkocy of Advest Inc. said the market, including the banks, "was ripe for something like this to happen in light of how much strength we have seen. We suddenly have a new degree of uncertainty about whether or not the Fed is going to cut (rates) again any time soon, and we have weakness in the bond market, which is hurting these stocks.

"But if you look at the numbers, the earnings, asset quality, and loan demand banks have been holding up well and the expense control programs at many institutions have been working reasonably well," he added. "And merger-mania continues. That may serve to pep up the (bank stock) group after a period of profit taking. We probably needed a pause to create buying opportunities again."

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