Even in a rotten market, takeover speculation can still move a stock -- especially if it's a stock that's been beaten down as much as FleetBoston Financial ( FBF). At one point this week, shares of the nation's seventh-largest bank rose nearly 24% on speculation that a bidding war was about to break out for the Boston-based lender. But by week's end, the stock gave back about half of those gains as some industry experts threw cold water on the speculation and investors began fretting about the possibility of a double-dip recession. "Clearly
investors are speculating," says Christopher Mutascio, a Legg Mason bank analyst. "But I don't see anything happening in the next couple of quarters." Indeed, on Friday, speculation about a big bank merger seemed to be the last thing on the minds of investors in financial services stocks. In late tradingon Friday, shares of Fleet had fallen 50 cents, or 2.42%, to $20.95. Citigroup's stock dropped $1.56, or just under 5%, to $30.74, while J.P. Morgan Chase ( JPM) plunged $1.20, or almost 5%, to $23.82. The Philadelphia KBW Bank Index was off 3.19%. Bank stocks fell even in the face of renewed chatter on Wall Street that the Federal Reserve might be tempted to cut interest rates once again when it meets later this month. A drop in interest rates is normally good news for bank stocks, because it reduces the borrowing costs for banks and makes their loans more profitable. But with interest rates already awfully low, the bigger concerns to bank investors appear to be the threat of another recession, a rise in loan defaults and reduced borrowing by both consumers and businesses. "We've turned rather pessimistic about how strong the consumer will be for the rest of the year," says Harold Schroeder, a money manager with Carlson Capital, a hedge fund that specializes in financial services stocks.