J.P. Morgan & Co. shares were downgraded Tuesday by Lawrence Cohn of PaineWebber Inc., who said the stock was getting too expensive.

Mr. Cohn cut his rating to "neutral" from "buy" after a better-than- expected earnings report Monday sent Morgan's stock soaring past Mr. Cohn's target of $102.50 a share.

The shares rose $2 Tuesday, to $104.50, amid a strong bank rally that lifted the S&P bank index 2.68%.

The analyst maintained his earnings-per-share estimates of $7.70 for 1997 and $8.10 for 1998.

Other market observers also had misgivings as they read between the lines of the glowing earnings report.

Though Morgan made gains from trading and investment banking, those lines of business also boosted expenses more than some analysts had hoped.

"I think generally their expenses are a little high, and would like them to come down," said Hunter Hallowell, a Dresdner Kleinwort Benson analyst who is leaving to form Endurance Capital LLC, an institutional research and money management adviser.

He said Morgan has had to step up spending to offset a talent drain caused by the entry of large foreign investors in the market.

Mr. Hallowell shared Mr. Cohn's concern about valuation. "There's not much margin for safety when the market is trucking along at 880 miles per hour," he said. "You would have to be wildly optimistic to buy at these levels; you're really running at the red line."

But Mr. Hallowell also was upbeat about the bank's long-term strategy.

"J.P. Morgan is the first to see the merits of becoming a global investment bank," he said. "They have gone at it slowly, tested where their competencies are, and gone with their strengths. They are really starting to reap the benefits of what they began in 1980."

Fred Meinke of CoreStates Investment Advisors said he was pleased at Morgan's results, and he praised its agility in corporate finance.

"They have been working diligently on building their sales and trading and M&A advisory work," Mr. Meinke said. "They have always had more of a rifle-shot approach to the market and been very focused on a small number of important accounts."

Separately, George M. Salem of Gerard Klauer Mattison reiterated his "buy" rating on NationsBank Corp., which reported a 12.5% revenue jump Monday.

NationsBank stock gained $3.75, to $106.62.

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