Some Banks Move to Cut Lending Rate : Economy: The move to 9 3/4% is the first drop in the prime rate in a year. Major institutions are expected to follow suit.

A handful of banks took steps today to cut the prime rate by a quarter percentage point to 9 3/4%, marking the first time the key lending rate has been lowered in nearly a year.

The biggest institution so far to trim the rate, which is a base for setting a wide range of loans, was First Fidelity Bancorp, the nation’s 20th-largest bank and the largest bank in New Jersey. The lower rate will be effective Monday.

Southwest Bank of St. Louis, which had carved out a reputation for taking the lead in cutting rates, was the first to announce that it was lowering its prime rate, also effective Monday.

It said the lower rate reflects its belief that “commercial loan customers should participate in the general trend toward lower interest rates in recent months.”

Manufacturers & Traders Trust of Buffalo, a unit of First Empire State Corp., mimicked the move a few hours later.

Analysts said they expected other major banks to follow. “It’s virtually certain the banking industry will go to 9 3/4%,” probably by early next week, said William Sullivan, director of money market research at Dean Witter Reynolds Inc.

The prime rate reflects a bank’s cost of borrowing money and is used in calculating business and consumer loans. Major banks last cut the rate by half a percentage point to 10% on Jan. 8.

Today’s cut came on the heels of a disappointing employment report by the Labor Department in Washington, which showed an increase in the civilian jobless rate to 5.9% from 5.7% and offered particularly strong evidence that a recession has taken hold.

“The employment report was extremely weak and suggests that the Federal Reserve will step up the pace of accommodation,” Sullivan said. He also said that the report could trigger “fairly sharp declines in short-term money market rates, and that translates to further downward pressure on the prime rate.”

Economists have been waiting for the Fed to lower interest rates to stimulate the economy. The Fed took some action today to notch rates lower by allowing the federal funds rate, the rate banks charge each other on overnight loans, to drift down by a quarter of a percentage point to 7 1/4%.

In addition, the central bank said it would inject money into the banking system later in the afternoon to encourage banks to make more funds available.

Government officials have beseeched the nation’s banks in recent weeks to broaden lending practices rather than continue to tighten credit and choke off customers in need of funds.