Short interest in banking stocks traded on the New York and American stock exchanges rose by 7.1% in the month ending May 15 to more than 156 million shares.

The rising short interest reflects hedging strategies of investors as well as bets that the stocks will decline in value after a recent rally.

The largest increases in banks' short positions were in shares of Citicorp and Fleet Financial Corp. They also ranked first and second in total short interest for the second straight month.

Short activity in Citicorp jumped by 4.9 million shares, or 23.5%, with arbitragers focusing on the imminent conversion of preferred stock issued by the New York bank as part of its huge recapitalization effort several years ago.

With over 25.7 million shares shorted as of May 15, Citicorp has by far the largest short interest among the nation's banks.

Fleet ranked second with 16.5 million shares, up 3.8 million shares or 29.7% from last month's tally.

The flurry in stock of Fleet, based in Providence, R.I., is also largely arbitrage related. The activity centers on Fleet's planned acquisition of Shawmut National Corp., Hartford, Conn.

Short interest is the total number of shares of a stock that have been borrowed and sold by investors in anticipation of profiting by repaying such loans with cheaper shares.

Investors engage in short selling if they think the price of the stock involved will fall or to offset similar long positions. Increasingly, short selling is part of sophisticated hedging and arbitrage strategies on Wall Street.

The third-largest increase in short interest was in shares of National City Corp., Cleveland, up 1.8 million shares, or 49%, to 5.5 million shares.

The fourth-largest gain from mid-April to mid-May was in the shares of Bank of New York Co., up 1.5 million, or 31% to nearly 6.5 million shares.

On average, the short interest in banks traded on the New York and American exchanges would require 6.9 days of trading volume for investors to cover their short positions with shares purchased to replace the borrowed shares.

National City Corp., whose stock recently traded an average of 150,852 shares a day, has a coverage ratio of 36.7 days. Fleet's ratio is 28 days, while Citicorp's ratio is 15.4 days.

Data on short interest are compiled monthly by the exchanges. The National Association of Securities Dealers Automated Quotation market does the same for Nasdaq traded stocks at a later date.

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