Southwest Bank of St. Louis, which often has led the banking industry in adjusting interest rates, yesterday cut its prime lending rate to 8.5 percent from 8.75 percent, but no major bank followed.

Southwest Bank, a relatively small bank with $277 million in assets, lowered its rate to reflect a decline in the cost to the bank of luring funds from depositors and borrowing from the Federal Reserve System.

"We believe other banks would have lowered their prime {rate} already if they didn't have to make up for losses on foreign debts," said I.A. Long, chairman emeritus of Southwest Bank. He was referring to the losses many large U.S. banks have suffered from soured loans to Latin America and other less developed regions.

Several bank industry analysts discounted such reasoning, however, saying that banks charge shareholders -- not new or existing borrowers -- for losses on previous loans. Decisions to lower or raise the prime rate are based only on a bank's cost of raising money, they said.

"Otherwise, it would be biting your nose to spite your face," said Robert Albertson, bank analyst for the investment banking firm of Goldman Sachs in New York.

James M. McDermott Jr., senior vice president of Keefe, Bruyette & Woods Inc., a securities firm specializing in bank stocks, agreed. But he said that Southwest Bank has "made a practice of being first out" to drop the prime and did not rule out the possibility that other banks may eventually follow.

"It's a welcome sign, but whether it presages a move industry-wide remains to be seen," McDermott said. "What you really need to see is a reduction by a major bank."

Although no other banks lowered their rate yesterday, in the past they have sometimes acted several days or even weeks after Southwest Bank.

Citicorp and Bankers Trust Co., the largest and eighth-largest bank companies respectively, would not comment yesterday on whether they plan to follow Southwest Bank. Riggs National Bank, the largest bank in the District, said it had no plans to cut its prime rate.

The prime rate originally was the interest rate a bank charged its most creditworthy customers.

Now, however, a bank's best customers usually pay rates below prime. As a result, the prime rate has become a benchmark of business borrowing costs rather than a price actually charged, and is used in the calculation of some consumer rates.

Southwest said that lower costs were the main reason for yesterday's action. Long said, for example, that rates have fallen on borrowings from the Fed, on Treasury bonds and for commercial paper, a corporate IOU.

Another factor was last month's drop in the index of leading economic indicators, which took its sharpest drop in more than three years, indicating a sluggish economy, Long said. The leading indicators generally anticipate changes in the economy.

The bank also believes that because oil-producing countries in the Mideast have been unable to limit production, energy prices will fall, Long said.