Thrift stocks outpaced bank stocks last week, as bargain hunters waded into the market.

Thrift analysts said that they expect the gains to continue as the environment become much more favorable for thrifts.

The comeback in thrift stocks, said analysts, was long overdue because they were unfairly punished during the last two major selloffs. The Salomon Brothers Smith Barney Savings and Loan index gained 4.2%, while the Standard & Poor's bank index climbed only 3%. Analysts said that thrift stocks are "catching up" to the rest of the market.

But investors have also realized that thrifts do not have exposure to tumultuous foreign markets or risky hedge funds, said thrift analyst Thomas O'Donnell of Salomon Smith Barney. "That selloff in August was unwarranted."

Mr. O'Donnell said that the Federal Reserve's latest round of interest rate cuts also is likely to benefit thrifts more than banks because most thrifts have rate-sensitive securities on their books.

Thrift analyst James R. Bradshaw of Pacific Crest Securities Inc. said that the decline in refinancings also has fueled the rise in thrift stocks.

"Refinancings have declined to August levels," said Mr. Bradshaw citing a recent report put out by the Mortgage Bankers Association.

The gains in thrift stocks, however, are not likely to set off a wave of consolidation in the industry this year. Deal activity is not likely to pick up until the second half of next year, because companies must contend with the year-2000 bug, said Mr. O'Donnell.

Thrift analyst Chad Yonker of Fox-Pitt, Kelton said that merger activity is likely to stay dormant because some bankers still want to sell their companies at last year's lofty prices.

"Valuations are still very low compared to what they were," said Mr. Yonker. "It is difficult to come to grips with the fact that your company is selling at a much cheaper multiple now than it was six months ago."

On Friday bank stocks surged as well, as investors looked forward to favorable fourth-quarter earnings. The Standard & Poor's bank index rose 1.09%, and the Dow Jones industrial average 1.14%. The S&P 500 gained 0.95%, and the Nasdaq bank index 1.14%.

Gainers included J.P. Morgan & Co. $3.25, to $109.625; Fleet Financial Group Inc. $1.375, to $43.3125; and State Street Corp. $2.0625, to $68.875.

Bankers Trust shares surged more than 7% Friday on speculation that the company was in talks with the German banking behemoth Deutsche Bank.

The rumor which has circulated off and on for almost a year was quelled after Bankers Trust chairman Frank Newman said such rumors were "ridiculous" during a conference call discussing third-quarter earnings.

The rumor also lost its power after Deutsche Bank suffered a 83% profit loss during the third quarter.

Bankers Trust shares rose $5.50, to $77.50.

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