U.S. Bancorp, one of the most highly recommended banking stocks, was downgraded Tuesday by Montgomery Securities Inc.

Industry analyst Diane L. Merdian cut the freshly merged company to "hold" from "buy" on the basis of the stock price.

"We do not expect this stock to outperform over the next six months," wrote Ms. Merdian in a report. "The market has appropriately recognized this management's commitment to shareholder value creation and exemplary execution."

Analysts have rallied around U.S. Bancorp, created by the merger last week of First Bank System and the original U.S. Bancorp, citing strong management, substantial cost savings, and a strong business mix.

Goldman, Sachs & Co., Salomon Brothers Inc., Credit Suisse First Boston, Merrill Lynch & Co., and other brokerage firms have either upgraded the company's stock to "buy" or reiterated their "buy" ratings in recent weeks.

But in recent days U.S. Bancorp shares have appreciated 2.7%. The stock gained 3.4% on the day the merger was officially announced. In Tuesday trading U.S. Bancorp's shares fell 62.5 cents to $89.375, on a day when bank stocks moved sluggishly.

But banks got a vote of confidence from veteran analyst George M. Salem of Gerard Klauer Mattison & Co., who cited "favorable conditions for continued outperformance by bank stocks."

He raised his target prices on BankAmerica Corp. to $85 from $80, on Bank of New York to $60 from $53, on NationsBank to $89 from $80, and on Norwest Corp. to $77 from $65. All are "buy"-rated, along with Mr. Salem's favorite, Chase Manhattan Corp.

Ms. Merdian said that she is likely to recommend the stock in 1998 when the company re-starts its buyback program.

"We anticipate investors will want to own this stock in early 1998 when the company tries to address the excess capital that will have accumulated between March and December of 1997-the period during which U.S. Bancorp is unable to repurchase shares due to its use of pooling of interest accounting treatment for the acquisition of the original US Bancorp."

Meanwhile Ms. Merdian upgraded Wachovia Corp. to "buy" from "hold" on the same day.

"The company's "valuation has become relatively more attractive since ... .the announcement of their Central Fidelity acquisition," wrote Mr. Merdian in a report. The day of the announcement, Wachovia shares fell on heavy volume.

"We anticipate strong revenue growth and believe we are approaching the end of the outsized expense growth driven by technology investments," wrote Ms. Merdian. Investors may put on a premium on Wachovia's superior underwriting abilities, she added.

Her one-year target price for Wachovia is $74. Wachovia's share rose 37.5 cents to $63.68 during Tuesday's trading.

Finally, Ms. Merdian downgraded Pacific Century Financial (formerly Bancorp Hawaii) to "hold" from "buy," citing slow growth in the company's main market. Shares of the company fell 16 cents to $51.16.

Cityscape Financial Corp. shares fell $1.25 to $13.50 after the company announced second-quarter earnings well shy of analysts' expectations.

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