Favourites such as Public Bank Bhd's foreign tranche have risen 40 to 50 per cent in the past two months alone.

Public Bank foreign traded at 2.51 ringgit (66 US cents) on Thursday at 0755 GMT on the Kuala Lumpur Stock Exchange, up from 82 cents in August 1998.

Malaysia's finance sector index has more than doubled to 3,711 on Thursday from the 1998 low of 1,616.

``The panic is certainly over in the financial system. A measure of confidence has been restored,'' said chief regional economist PK Basu at Credit Suisse First Boston in Singapore.

Several foreign brokerages have upgraded their views of Malaysian bank stocks, thanks to Malaysia's widely applauded efforts to restructure them.

ING Barings place this banks to neutral from underweight, citing the work of two agencies set up to recapitalise and restructure financial institutions.

ING Barings said it favoured Public Bank and RHB Capital, which owns RHB Bank, the country's third largest.

It revised upwards its estimate of the banking sector's 1999 forecast of 10.7 per cent, citing the planned injection of up to 16 billion ringgit ($4.2 billion) by Danamodal.

Singapore's Kay Hian Research, which said it had been negative on Malaysian banks since the start of Asia's financial crisis in mid-1997, has upgraded the sector to overweight from underweight.

It cut peak non-performing loans (NPLs) expectations to 21.7 per cent of total loans from 33.2 per cent to reflect the carve-outs by Danaharta.

``Bank earnings are expected to recover by the second half of 1999 instead of the second half of 2000,'' Kay Hian analyst Lim Beng Leong said in the report. ``We expect Public Bank to lead earnings recovery.''

US Investment bank Goldman Sachs said on Wednesday it was long on Malaysian stocks and noted that overall banking sector problems were less severe than in other crisis countries.

``Unlike Thailand or Japan, Malaysia cannot be criticised for dragging its feet on the use of government funds to restructure its banks and NPLs,'' the bank said in a separate Asian bank research report.

ING said NPLs, based on a three-month classification period, could fall to 13.5 per cent from its previous of 25 per cent. Malaysia reverted to six-month NPL classification in September.

Sceptics said Malaysian banks still had a long way to go.

``The banking sector has got some weak members. Some are quite on the rocks,'' said one Singapore banking analyst. ``The earlier the authorities can consolidate, the better.''

In a report entitled ``Malaysia Banks -- Survivors and Casualties,'' raping agency Fitch IBCA said 16 out of 23 Malaysian banks would remain solvent, but at least half of the sector would need some form of capital support.

It said among banks currently assigned individual ratings, Bank of Commerce looked quite weak. It said Malayan Banking, the country's largest, did not rank very highly but it was rated.

It listed seven relatively strong banks - Bank Islam, Southern Bank, Public Bank, Bank Utama, Hock Hua Bank, and Ban Hin Lee Bank -- all of which have equity to loans ratios of over eight per cent as expected.