Small banks have a new friend in the Ohio Bureau of Workers' Compensation.

The state agency aims to invest at least $25 million in shares of such banks to augment a fund for state residents injured on the job.

Investing in banks is part of a diversification strategy for the $20 billion fund. The objective is to broaden into undervalued market sectors.

The timing "couldn't be better," said Michael E. Guirlinger, president of Banc Stock Group, which has been hired to oversee the financial institution segment of the plan.

Bank stocks have been losing ground for the past few weeks, with the smaller, less-liquid institutions hit hardest.

"Anytime people are selling community bank stocks, we want to move in," said Mr. Guirlinger, whose Columbus, Ohio, firm manages several bank stock portfolios.

On behalf of the state agency, Banc Stock Group will be looking at institutions with assets of $1 billion to $10 billion and market capitalization of $100 million to $8 billion.

It is looking well beyond Ohio. The management firm expects about 20 states will be represented once the fund is fully invested.

Mr. Guirlinger declined to name specific investments, but he said that the fund probably will own shares of 40 to 50 banks.

The objective will be to find banks that are performing well but whose shares trade at a multiple below their peers.

The banks should be delivering returns on equity that top 12% and should have significant ownership by management and records low loan losses, Mr. Guirlinger said.

After the initial $25 million investment by the Ohio bureau, "we hope the performance will show it would be worthwhile to add more," Mr. Guirlinger said.

Meanwhile, stocks endured a volatile trading session Monday. Markets opened lower, with the Dow Jones industrial average slipping 88 points in early trading.

Traders attributed the dip to resumed concerns that the next round of profit reports will reflect further hits from Asia. The market came back a bit in the early afternoon, but by day's end it was on a downward run.

The Standard & Poor's bank index dropped 1.56% and the Dow 1.09%. The Nasdaq bank index shed 0.71% and the S&P 500 0.73%.

The volatility will continue if history is any example, because August is a notoriously rocky month for stocks.

Last August proved to be the worst month of the year, with the Dow losing 600 points, or 7.3%. The Dow has lost ground during two of the past three Augusts, despite the long bull market.

The average return for the month of August-since the start of this century-has been just 0.21%, according to Dow Jones & Co.

Fleet Financial Group rose 12.5 cents, to $86.0625; and Mellon Bank Corp. fell 93.75 cents, to $66.4375, after being raised from "hold" to a new ranking of "accumulate" at Prudential Securities.

Citicorp fell $6.375 to $163.625, in a move that Michael Mayo of Credit Suisse First Boston attributed to profit taking.

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