J.P. Morgan & Co. said Tuesday it would seek $300 million to $500 million in annual cost savings over the next two years and use the proceeds to invest in key growth businesses.

Bucking a downward trend for bank stocks, shares of $272 billion-asset Morgan rallied on the announcement, made at an afternoon analysts' meeting. After trading as low as $131.50 earlier in the day, Morgan closed at $134.5625, up 37.5 cents.

Chief financial officer John A. Mayer Jr. said the cost-control initiatives include $250 million in annual savings from a February restructuring program. Morgan's efficiency ratio-expenses measured as a percentage of revenues-should improve from 71% now to "the mid-sixties" over two years, Mr. Mayer said.

Clayton S. Rose, head of equities at the bank, projected revenues from equity underwriting to grow 25% annually with costs rising 12% to 13% over each of the next "several" years. Mr. Rose said the bank has invested $1.8 billion in building equity capabilities since the early 1990s and said the effort is 80% complete.

Ramon de Oliveira, head of asset management, projected 15% to 20% growth in the assets under management over the next three years, from $257 million at yearend 1997. He said the bank was considering "alliances" with fund companies in Japan and other overseas markets.

Morgan's announcement was a rare bright spot on an otherwise gloomy day for bank stocks. The industry led a broad market decline as interest rate jitters once again spooked investors.

The fall was sparked by Michel Camdessus, managing director of the International Monetary Fund, who said early Tuesday the Federal Reserve "will have to move sooner rather than later" to brake an "exuberant" U.S. stock market.

The comment raised doubts about the anticipated slowdown of the U.S. economy and whether "coordinated economic growth" with Europe will proceed, said Richard Davis, chief of equity research at Tucker Anthony.

Meanwhile, investors were bracing for Friday's release of the April employment report. Many seemed to think it will be strong enough to build pressure for a rate rise.

"People are stressed out about rates backing up, and that has a big impact on the shares of financials," one equity trader said.

Chase Manhattan Corp. slipped $2.125, to $136.9375; Citicorp shed $2.9375, to $149.6875; and Wells Fargo & Co. dropped $2, to $377.50, on fears that higher borrowing costs will erode profit margins.

The Standard & Poor's bank index was down 1.29% and the Dow Jones industrial average 0.49%. The Nasdaq bank index dipped 0.34% and the S&P 500 0.57%.

One of the few gainers was Unionbancal, up $1.625, to $103, on continued takeover speculation. The company is in the spotlight on talk that its Japanese owners may be looking for a buyer and its positioning in the hot California market, where it operates 240 branches.

Bear Stearns & Co. expects the economy to continue humming and the assessment makes it bullish on bank stocks, despite Tuesday's upheaval.

"Any selloff in banks due to rate fears really presents a buying opportunity," said Sean J. Ryan, one of the firm's equity analysts.

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