The banks, including First Union Corp and Chase ManhattanCorp, raised theirprime lending rate to 8.5 per cent from 8.25 per cent, effective Wednesday.The prime rate is used by banks to price commercial loans to their mostcredit-worthy customers and acts as a benchmark rate for other loans.

The banks acted after the Federal Reserve raised two key short-terminterest rates by a quarter of a per cent, to hold inflation at bay. The Fedalso signalled this might be the last increase in borrowing costs for awhile. As a result, the cost of credit card, adjustable rate mortgage andcar loans will rise, potentially bringing more money into banks' coffers ifdemand for loans does not slow as a result. Banks own borrowing costs couldalso rise slightly. Regional banks can also profit somewhat if they do nothave to pay out higher rates on deposits as quickly as they can charge morefor loans, Kate Blecher, an analyst at Brown Brothers Harriman said.

"Most regionals can do better with a little lift at these levels," Blechersaid. "They do not have to raise deposit rates as quickly."

Bank and broker stocks were strong after the Fed action on Tuesday. ChaseManhattan's stock price rose 3 to 85-3/4, Citigroup's gained 2-3/16 to57-7/8, Bank of America's rose 1-3/16 to 66-15/16 and JP Morgan & Co Inc'sincreased 3-9/16 to 141-15/16.

Among brokerage shares, Merrill Lynch and Co. Inc jumped 5-1/16 to 87-3/4,Morgan Stanley Dean Witter & Co rallied 6-3/16 to 127-1/4 and LehmanBrothers advanced 4-7/16 to 83-15/16. Rate hikes give investors alternativesto stocks, curbing broker commissions.

The Federal Reserve raised the federal funds rate on overnight loans betweenbanks by a quarter percent to 5.5 per cent, that rate's third increase thisyear.

The Fed also increased the discount rate on direct Fed loans to banks to 5per cent from 4.75 per cent.