Short sellers are betting that the merger-related rally in bank stocks has run its course.

Short positions in bank stocks traded on the New York and American stock exchanges rose 10.5% in the month ending Sept. 15, to 178.6 million shares, according to a monthly survey by American Banker. Short selling in general was up by less than half that much.

The short position in PNC Bank Corp. was the largest in the industry, at 29.8 million shares. PNC moved past Fleet Financial Corp., whose short position rose by 1.3 million shares to just over 22 million. Bank of New York moved into third place, its short position increasing by 1.5 million shares, to nearly 10.8 million.

Short interest is the outstanding volume of shares sold short - that is, borrowed and promptly sold in hopes of profiting from a decline in the share price.

Analysts said many of the largest short positions in banks have been due not to pessimism about the banks, but to sophisticated investment strategies tied to announced merger deals.

They said, however, that the latest, sectorwide increase in short positions reflects a growing sentiment in the marketplace that bank stock prices are overdue for a downward adjustment. During the four week period in question, the American Banker bank index rose 8.95%, while the S&P 500 composite index rose only 4.18%.

"The increase in short interest reflects a belief by some that the bank stock move is over," said Michael Mayo, a bank analyst at Lehman Brothers.

In fact, bank stocks fell sharply Thursday and Friday. The decline appeared to be driven by a combination of downgrades by analysts who said some issues are approaching their projected peaks and doubts that the Federal Reserve will ease interest rates this week.

Mr. Mayo said his firm believes the short sellers are wrong, and that rally will continue. He added that, from a technical standpoint, an increase in short interest could be "a bullish sign" for bank stocks. Shares in bank stocks will receive an added boost if short sellers have to buy shares to cover their positions, Mr. Mayo said.

Lately, much of the short selling in the bank sector has reflected positions taken by arbitragers in companies that announce acquisitions, such as PNC and Fleet. The arbitragers simultaneously buy the stock of the merger targets in hopes of locking in the spread between the takeover price and the market price of the target.

Indeed, short selling of PNC was especially heavy for a second month in a row, indicating that arbitragers are continuing to sell PNC's stock short in anticipation of the Pittsburgh bank's completion of its acquisition of Midlantic Corp. Some analysts have criticized the deal.

The trend accelerated during the month despite a Sept. 6 report by Mr. Mayo arguing that PNC shareholders might vote down the purchase. The latest month's increase, 12.2 million-shares, was slightly bigger than that of the previous month, when PNC's short position also was the fastest growing.

Fleet's short position has been high since early in the year, when the Providence, R.I., banking company unveiled its deal to acquire Shawmut National Corp.

There was no news about Bank of New York that would justify the rise in the short position on its stock, said Salomon Brothers analyst Diane B. Glossman. But she noted that rumors periodically surface about "the potential for an imprudent merger" by Bank of New York, and that these could have fueled some short selling.

The short position in Citicorp, which had been the largest among banks earlier this year, continued to decline. Short interest in the company fell by more than six million shares, to 9.7 million, the fourth largest position in the industry.

Much of Citicorp's short position reflected arbitrage related to convertible preferred stock the bank issued in 1991. Now that the shares are being converted, the short position has started to fall.

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