Stocks: Market Struggles Higher But Peters Out by the Close

An early market rally in bank stocks ran out of steam Monday.

Stocks roared out of the chutes in early trading, with the Standard & Poor's bank index rising as much as 3.3% before settling back to close up 0.09%. The Dow Jones industrial average rose 80.07 points, to 8,108.94.

Behind the early gains were optimism that the Federal Reserve would cut rates today and news that the Japanese government had agreed to buy shares in Long-Term Credit Bank while seeking a buyer. Tokyo also agreed not to shield a leasing unit of Long-Term Credit from filing for bankruptcy.

Additionally, no other hedge funds blew up last week after top commercial and investment banks effectively took over Long-Term Capital Management LP.

The confluence of positive events in what have been otherwise gloomy times restored investor confidence, at least for a while.

"It's a relief rally," said Lawrence W. Cohn, director of research at Ryan, Beck & Co., Livingston, N.J.

But few analysts are saying a corner has been turned.

Indeed, Mr. Cohn downgraded the shares of Chase Manhattan Corp. and Bankers Trust Corp. to "hold" because of their role in the Long-Term Capital bailout and uncertainty over how many more millions the banks will have to cough up rescuing similar ventures.

"Somebody is on the hook for $80 billion in loans to Long- Term Capital, and until we know where the risks are we would rather be on the sidelines," he said.

Monday's short-lived rally is typical of the recent market. Although bank stocks have posted some solid, even startling, one-day gains in recent weeks, they have had difficulty holding onto them.

Since early August the S&P bank index has consistently posted strong gains early in the week, only to shed them by week's end or sooner.

For example, the index rose 1.9%, to 694.17, on Wednesday, Aug. 5, only to fall to 686.99 by that Friday.

On Wednesday, Aug. 12, the index rose 2.3%, to 669.17, only to fall to 658.37 the next day.

The following week, on Monday, Aug. 17, the index rose another 2.3%, to 664.21, but by Thursday had fallen to 654.37.

Then the bank stock indexes fell consistently for two weeks, along with the rest of the market.

On Tuesday, Sept. 1, the S&P bank index resumed its rise, gaining 3.3%, to 565.62. But it closed the week down, at 536.62.

The week of Sept. 8 began on an encouraging note, with banks rising 7%, to 574.23. But by Thursday the party was over, with the index falling back to 533.24, their low point for the year to date.

And Monday, Sept. 14, banks got out the box by rising 2.6%, to 581.08. But for the week banks closed at 576.38.

Last week the banks had another great Monday, rising 5.8%, to 617.09, but promptly fell back to 587.68 the next day.

It could go on like this for a while, analysts say. Until Japan shows signs of definitively resolving its banking crisis, until Brazil and other emerging markets show signs of getting their financial houses in order, and until people know who holds the keys to Russia's nuclear weapons, bank stocks will remain unstable, said Eric Rothmann, a bank analyst at Stephens Inc.

"It'll be a bumpy ride," he said.

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