Bank and brokerage stocks rallied on Thursday, fueled by a strong earnings report from Morgan Stanley Dean Witter & Co., which analysts said suggested the financial sector has rebounded from the turmoil of last fall.

Income at the New York investment bank jumped 81% to $1.04 billion in its fiscal first quarter, which ended Feb. 28, paced by renewed strength in the global markets and securities businesses.

"This is viewed as a positive sign" for other banking and brokerage companies, said Charles Peabody, equities analyst with Mitchell Securities, New York.

On a per-share basis, profits at Morgan Stanley increased to $1.76 from 91 cents, handily beating the $1.34 consensus expectation of Wall Street analysts surveyed by First Call Corp. Excluding an accounting change in last year's first quarter, net income rose 50%, to $1.04 billion.

The company "was able to capitalize on the improved environment" for investment banking firms in the first quarter, chairman Philip Purcell said.

Shares of Morgan Stanley jumped $5.75, to $104.125.

Elsewhere among brokerages, Bear Stearns gained $2.25, to $45.6875; Donaldson, Lufkin & Jenrette, $4.9375, to $65.25; and Lehman Brothers $3.75, to $58.875.

Among the major commercial banks, BankAmerica Corp. rose $1.75, to $69.875; Citigroup, $2.75, to $62.875; and Chase Manhattan Corp., $2.125, to $81.50.

The Standard & Poor's bank index rose 1.23% and the Dow Jones industrial average gained 1.75%. The Nasdaq bank index was up 0.77% and the S&P 500 added 1.68%.

But some market watchers say bank stocks will not be able to sustain their gains.

"In this volatile market, investors will be looking for something with sex appeal, and banks don't fit the bill," said Alan F. Morel, banking analyst at J.J.B. Hillard, W.L. Lyons Inc., Louisville, Ky. "The value investors are not participating in this market rise because the momentum investors are dominating."

Between July and October, the stock market dropped by 33%, and while it has recouped, many bank stocks have lagged, analysts said.

"Banking companies are gaining value for earning money but their stocks are not being credited for it," Mr. Morel said. "We know the valuation will be recognized, but we don't know when it is going to start."

Instead of going into bank shares, "money will be looking elsewhere over the next six to 10 weeks," predicted Peter Green, chief technical strategist at Gruntal & Co.

"Investors will be leaving bank stocks and looking at more industrial- type stocks because of Japan's recent strength," Mr. Green said.

Over the longer term, however, industry watchers on Wall Street contend that bank stocks will not only sustain their gains, but head higher.

"The earnings outlook for regional banks is very good, and that bodes well for the group," said Robert Becker, banking analyst at Argus Research, New York.

"With very positive earnings results for the first quarter, bank shares should maintain their upward momentum," Mr. Becker said. u

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