U.S. bank stocks leaped Tuesday on news that Japan was taking steps to cut interest rates.
The Standard & Poor's bank index was up nearly 3% early in the day after Bank of Japan Governor Masaru Hayami said the central bank would allow a further decline in the country's overnight interbank rate. (See story on page 26.)
That news came on the heels of Friday's move by the Japanese central bank to cut its target for the rate-the equivalent of the U.S. federal funds rate-to 0.15%.
The action "took away a cloud" from U.S. bank stocks, said Arun Kumar, senior U.S. strategist at Lehman Brothers. It was feared that if rates went up in Japan investors would pull out of U.S. investments-most notably financial institution shares-and put their money into Japanese bonds, Mr. Kumar said.
Widely traded international banking companies were among the biggest gainers on the news. BankAmerica Corp. shares rose $1.75, to $64.625; Citigroup $1.5625, to $53.4375; and J.P. Morgan & Co. $1.875, to $110.25.
The trading underscored bank stocks' sensitivity to actions overseas. Indeed, bank stocks, after being down in recent days, were leaders in a morning rally that was also fueled by strength in the technology sector. "The market is taking its cue from bank and technology stocks," Mr. Kumar said.
Though bank stocks remained higher for the day, the rally in the tech sector quickly lost steam.
The Dow Jones industrial average ended the day up 0.24% and the Standard & Poor's bank index 2.15%. The S&P 500 was up 0.95% and the Nasdaq bank index 0.77%.
Economic trends were also moving the market in a positive way for banks, analysts said.
"There are very few impediments to the investment landscape," said Joseph V. Battipaglia, chairman of investment policy at Gruntal & Co.
"The impeachment trial is over, emerging markets are moving on their problems, and the economy is showing sustained strength," Mr. Battipaglia said.
Separately, SunTrust Banks Inc. dropped 6.25 cents, to $67.4375, despite an upgrading to "outperform" from "perform" by Goldman, Sachs & Co. banking analyst Lori Appelbaum.
Ms. Appelbaum raised her 1999 earnings forecast by 5 cents, to $3.95 and said she expects shares to rise 20% in the coming year.
Ms. Appelbaum said she is confident that SunTrust will successfully complete its merger integration with Crestar Financial Corp.
About 90% of cost cuts coming from the merger "are believed to be easily achievable and involve simply renegotiating contracts," Mr. Appelbaum said. "The other 10% are viewed as more challenging, involving head count reductions.
"Any unexpected shortfall in achieving the merger synergies or weakness in ongoing business activities may potentially be offset by cost-reduction efforts in the core SunTrust franchise," Ms. Appelbaum said.
Chase Manhattan Corp. shares rose $3.625, to $77.6875, after Ronald I. Mandle of Sanford C. Bernstein & Co. reiterated his "outperform" rating for the stock. Mr. Mandle raised his 1999 earnings estimate by 15 cents, to $5.15 a share, and his 2000 estimate by 20 cents, to $5.70.
"The consumer business will be stronger than previously forecast, and capital markets revenues are off to a robust start in the new year," Mr. Mandle said.
He also said Chase's stock could trade at 65% of the average price-to- earnings multiple for S&P 500 stocks. He previously estimated Chase's potential relative price-earnings ratio at 62%.
The move is due to "superior performance last year and ongoing risk management focus," Mr. Mandle said.
Mr. Mandle said he expects "an upper-single-digit profit increase" because of greater productivity, modest deposit balance gains, and increased sales of investment products as more staff members become licensed to sell securities.