After showing some signs of life late last month, bank shares took another drubbing last week amid continuing fears about earnings growth.

In the five trading days ended last Thursday, the American Banker bank stock index fell 0.55%, while the Dow Jones industrial average was virtually flat.

The beating continued on Friday. Leading the way down were NationsBank Corp. shares, which fell $1.625 to close at $46.75, and Norwest Corp.'s shares, which lost $1.75 to close at $47.125. Wells Fargo & Co. plummeted $5.625 to $101.

Banks stocks underperformed the Dow Jones industrial average, which gained 0.27 point to close at 3,545.14.

Interest Rate Sensitivity

Bank stocks again followed the lead of the bond market, as investors have come to view the bank sector's earnings as subject to swings in interest rates. The yield on the 30-year Treasury bond rose to 6.92% from 6.86% on Thursday.

Friday's declines in bonds and bank stocks were sparked by the government's report of surprisingly strong growth in jobs last month. Nonfarm payrolls expanded 209,000, while the unemployment rate fell to 6.9% from 7%.

Investors interpreted the data as increasing the likelihood of a Federal Reserve tightening to check inflation. A tighter monetary policy is widely seen as squeezing bank profits by raising the cost of funds.

Fears of a Fed tightening have hurt bank stocks for the past week. Reports that the Federal Open Market Committee has adopted a pro-tightening stance triggered the latest round of selloffs.

Money managers and analysts predict that the sector could fare better than the overall market this week.

"I think banks could outperform on a relative basis," said Harlan Sonderling, an analyst with Putnam Investments in Boston.

Mr. Sonderling thinks that the economy is weak and that bank earnings are likely to be stronger than those in other sectors.

He noted that a 0.1-percentage-point drop in the unemployment report does not indicate robust growth.

In addition, he said the economy grew a lackluster 0.9% in the first quarter after rising 4.7% in the fourth period.

Anemic Profits Elsewhere

If the economy is only crawling, it is unlikely that many consumer product and industrial companies will post strong second-quarter earnings, said Mr. Sonderling.

In fact, some of these companies have reduced prices on some products, putting earnings in jeopardy.

Banks, by contrast, are expected to have solid, if not record, earnings in the second quarter, Mr. Sonderling said.

"I think bank stocks are poised for a relative outperformance, because banks don't have anything negative to say about their second-quarter earnings, unlike their industrial counterparts," said Mr. Sonderling.

Before last week's plunge, bank shares appeared to have stabilized after dropping since mid-April. After reaching 1993 nadirs in this period, First Interstate Bancorp, MBNA Corp., Bankers Trust New York Corp., and other banks have rebounded. Citicorp shares have been holding steady at around $28.

Said John Leonard, an analyst with Salomon Brothers Inc., "I think bank shares will be flat, with a moderate upward bias."

As the end of the quarter approaches, bank shares may get a boost from bank executives giving earnings previews to analysts and money managers.

"Over the next three to four weeks, banks shares will trend upward," said Robert Bonelli, executive director of the Ernst Financial Group.

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