A rare downgrade for Norwest Corp.-on the heels of a positive first- quarter performance-took some steam from one of the industry's better- regarded stocks.

Citing "a slower growth environment" for lending, Joel W. Silverstein at Prudential Securities lowered his investment rating to "hold" from "buy," and reduced earnings estimates for the next two years.

Shares of the Minneapolis banking company fell early in the day, then bounced back to close at $43.125, up 75 cents, as supporters demonstrated allegiance.

Outlining his reservations about the company, Mr. Silverstein said price-to-earnings multiples will languish unless Norwest "demonstrates improved momentum beyond its mortgage banking and trust and investment operations."

He reduced his earnings-per-share estimates by 5 cents, to $1.95 for this year and $2.20 for next year.

But he did make clear that his new "hold" recommendation is just that, and not a euphemism for "sell"-as some downgrades are. "We continue to view the stock as a core financial services sector holding," he said.

Many other analysts continue to urge investors to buy shares of Norwest, especially on the heels of this week's first-quarter earnings report. The company hit consensus estimates of 47 cents a share as net income rose 11.5% over the first quarter of 1997.

The performance demonstrates that Norwest is diversified enough to excel when certain market segments are off, said Robert Albertson at Goldman, Sachs & Co.

The company's "diversity of businesses is ensuring consistency," he said, in reiterating a "recommended list" ranking.

Merger speculation continued to move stocks. Unionbancal, holding company for Union Bank of California, was up $4.25, to $112.25, on rumblings that its primary owner, Bank of Tokyo Mitsubishi Ltd., was looking to sell.

A representative for the bank downplayed the talk, saying the $29.4 billion-asset institution-with 240 branches in California-is seen as attractive in light of BankAmerica's agreement to sell to NationsBank Corp.

"A whole new round of speculation has set in," said vice president David Ferm.

The market for bank shares will likely be driven by merger announcements and rumors in days ahead, analysts said.

The situation will make the stocks volatile in the days ahead. "It's going to be choppy," Mr. Silverstein said.

Indeed, the day saw many banks see-saw, and their accompanying indexes were mixed.

The Standard & Poor's bank index dipped 0.31% and the Dow Jones industrial average was up 0.57%. The Nasdaq bank index gained 0.56% and the S&P 500 rose 0.32%

For a pure value play, Star Banc is a good prospect, said William Katz, banking analyst at Merrill Lynch & Co.

The company has what it takes for a midcap-sized regional bank to thrive these days, Mr. Katz said.

In raising his ranking to "long-term buy" from "accumulate," he cited "sophisticated sales and marketing acumen, effective use of technology, expense efficiencies, and a disciplined, shareholder focused management." Shares were up $1.25, to $64.125.

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