News on Monday of a merger deal between Washington Mutual Inc. and Bank United Corp. had little impact on other thrifts' shares.

Thrifts were trading lower after the announcement that Washington Mutual, of Seattle, had a deal to buy the Houston thrift for $1.5 billion. Analysts said the weak trading had more to do with "a slow Monday in August" than with the merger, and they argued that interest rates rather than consolidation will determine the direction for thrift stocks.

Bruce Harting, an analyst at Lehman Brothers, said he does not expect to see more deals in the same size category as the one between Washington Mutual and Bank United, even if much room for consolidation remains.

Thrifts have outperformed banks in recent months as investors gained confidence that the Federal Reserve Open Markets Committee, which meets today in Washington, has no reason to hike short term interest rates higher. The Fed has lifted the fed funds rate six times since last summer, to 6.5%.

"Thrifts are still the cheapest stocks in the financial services" sector, said Martin S. Friedman of Friedman, Billings, Ramsey & Co. He said the gap between banks and thrifts, which historically trade at a discount to banks, will narrow over the next months as thrifts post strong earnings. He said thrift's rally to date has more to do with their bouncing back from low valuations during the last couple of years than with their performance.

Mr. Harting, whose firm advised Washington Mutual on the deal with Bank United, said that the recent trend to higher values is to some extent "Fed-related." Interest-sensitive thrifts benefit from stable rates, and if the Fed is done raising them, shares of thrifts will continue to be appreciated by investors, he said.

If the Fed decides to ratchet rates a notch higher, either today or later this year - as Lehman economists expect - thrift stocks will not be able to continue their current performance, Mr. Harting said. He also said most thrifts suffer from small market capitalization relative to banks and have a harder time attracting investors.

But other analysts noted thrifts' asset quality and loan chargeoff rates have improved. If the economy is indeed at the end of the credit cycle, "thrifts will be in great shape," Mr. Friedman said.

Stocks of financial companies in general were up on the expectation that Federal Reserve policymakers would leave interest rates unchanged. The American Banker index of the top 50 banks rose 1.06%, the index of 225 banks 0.78%.

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