The commercial banking industry took another giant step into the world of securities brokerage yesterday when J.P. Morgan & Co. became the first major U.S. bank holding company to obtain government permission to buy and sell corporate stock.

The Federal Reserve Board, which regulates bank holding companies, said that Morgan can underwrite a limited volume of securities through a subsidiary that is separate from the company's commercial bank, Morgan Guaranty Trust Co. of New York.

The decision means that Morgan, which was a major powerhouse in both banking and securities at the turn of the century, will be able to reenter a business barred to it since 1933, when Congress enacted a law separating commercial banking from stock underwriting. The theory was that the two businesses created conflicts of interest that encouraged the speculation that caused the stock market crash of 1929.

Five other bank companies -- Citicorp, Chase Manhattan Corp., Bankers Trust Co., Royal Bank of Canada and Canadian Imperial -- have applications to underwrite corporate stock pending with the Federal Reserve.

In recent years, banks have lost revenue as private corporations realized they could bypass banks and borrow money directly from each other through the so-called commercial paper market. Banks have been seeking to enter the securities business as a way to make up the lost revenue, but Congress, under pressure from the securities industry, has declined to pass legislation to expand banks' powers.

As a consequence, the Fed has slowly expanded a loophole that permits banks to do some securities work.

A number of legislators, including Rep. John Dingell (D-Mich.), chairman of the committee that oversees securities markets, have objected strongly to letting banks into the securities arena. The issue is sure to heat up early next year when the Bush administration unveils its plans to further deregulate the financial services industry.

Yesterday's action was the second step in a ruling that the Fed made in January 1989, when it allowed bank companies to trade corporate bonds through non-bank subsidiaries. At the time, the Fed said that revenue from the bond trading could not exceed 5 percent of the subsidiary's revenue. Since then, the Fed has raised the limit to 10 percent. The limit includes revenue from bonds and stocks.

Some bankers believe that the Fed eventually will raise the ceiling to 40 percent or more.

Morgan will sell securities through J.P. Morgan Securities Inc., the subsidiary through which the company trades government securities, which bank holding companies have always been allowed to trade. But sources close to the company say that it is likely to enter stock underwriting slowly because of the recent sluggishness in the securities business.