Mellon Bank Corp.'s shares surged more than 5% Thursday on fresh speculation that it would be acquired by Chase Manhattan Corp.
The rumor started flying after a report in The Wall Street Journal that merger talks between the New York banking giant and Merrill Lynch & Co. had fallen through.
Chase also reportedly held merger talks with other companies.
"If they talked to that many firms, it implies they want to do a deal," said Scott Edgar of the Sife Trust Fund.
Mellon, meanwhile, has been the subject of many market rumors since the Pittsburgh banking company rejected an unsolicited takeover bid from Bank of New York Co. several months ago.
"I believe the cultures are compatible," said Guy Wyser-Pratte, whose firm, Wyser-Pratte Management Co., owns 100,000 shares of Mellon. "I believe shareholders put a lot of pressure on Mellon because they did not take the Bank of New York deal."
Mellon shares rose 5.56%, or $4.125, to $74.875, on a day when some bank stocks rose modestly.
The Standard & Poor's bank index was flat, and the Dow Jones industrial average edged up 0.13%. The Nasdaq bank index advanced 0.33%, but the S&P 500 fell 0.32%.
The biggest gainers of the day included Summit Corp., up $1.0625, to $46.6875; BankBoston Corp., $1.125, to $55.875; and Wachovia Corp., $2, to $84.
Analysts said investors were initially attracted to bank shares Thursday by their relatively cheap prices and the prospect of satisfactory second- quarter earnings.
"Earnings will be the catalyst in the next sustained move in bank stocks," said veteran analyst Frank J. Barkocy of Josephthal & Co., New York. "We are looking for double-digit gains, and many bank stocks have become inexpensive," he said.
In the morning, apparently fearless bargain-hunters discarded anxieties about a flattening Treasury yield curve, as well as concerns that the economic crisis in Asia will get worse before it gets better.
A flattening yield curve, in which yields on longer- and shorter-term bonds converge, is typically a negative for banks, said Mr. Edgar. "But we are in an environment of low inflation, low interest rates, and a strong economy."
Some investors remained jittery, however. After the early surge, bank stocks and the rest of the market slipped in the afternoon.
"The overall tenor of the market is cautious," said one trader. "Investors are still very skittish because of what is happening in the Far East."
The market is also unforgiving, the trader added. After Haven Bancorp, Woodhaven, N.Y., announced Thursday that it expects slightly lower second- quarter earnings, investors dumped the stock. Haven fell $1.50 a share, to $25.50.