Setting aside a rivalry that goes back centuries, two of Japan's most powerful commercial lenders today announced tentative plans to merge into what would become the world's second-largest bank.

Executives from Osaka-based Sumitomo Bank Ltd. and Tokyo-based Sakura Bank Ltd. confirmed that they plan to unite by 2002 to cut costs, broaden business capabilities, and pump more money into computers and online services.

The announcement--the third of its kind in as many months--was greeted with applause from analysts and investors, many of whom have cast a wary eye at Japanese banks for years.

"You wait and wait for things to start happening around here, and just when you're about ready to throw in the towel in disgust--wham!--it all starts happening at once," said J. Brian Waterhouse, a veteran Japan bank analyst at HSBC Securities (Japan) Ltd. "I think we're right at the beginning of major transformation in the Japanese financial sector."

Investors appeared to share that view. The Nikkei stock average closed down slightly, but bank shares soared, with Sakura Bank's stock climbing 11.1 percent and Sumitomo Bank's rising 10.9 percent.

With today's gains, share prices for Japan's major banks have climbed a heady 225 percent since last October. Analysts say that is particularly impressive given that only one player, Bank of Tokyo-Mitsubishi Ltd., earned a profit in the most recent fiscal year.

Sumitomo Bank and Sakura Bank have a combined asset value of $925 billion. Historically, they have functioned as the vital center of Japan's fiercely competitive industrial groups, which are known by the name keiretsu. Sakura Bank, for example, serves as the main bank of the venerable Mitsui group, whose blue-chip roster includes Mitsui & Co., a global trading company; Mitsui Fudosan Co., a giant real estate developer; Mitsui Engineering & Shipbuilding Co.; and the Mitsukoshi department store chain.

Sumitomo Bank's key customers include Sumitomo Corp., Sumitomo Heavy Industries Ltd., Sumitomo Metal Mining Co. and electronics behemoth NEC Corp.

Analysts in Tokyo predicted that the wave of consolidation in the banking sector could lead to a broad restructuring of Japanese industry because of the integral role that the banks play in the Japanese economy.

"This creates tremendous pressure on the banks to restructure borrowers with more enthusiasm than they've shown in the past," said Kathy Matsui, a Japanese strategist at Goldman Sachs & Co.

Many experts described the Sumitomo-Sakura union as part of a much broader restructuring process that could eventually leave Japan with only four or five major banks. In August, three banks--Dai-Ichi Kangyo Bank Ltd., Fuji Bank Ltd. and the Industrial Bank of Japan Ltd.--announced plans to merge operations by 2002, creating the world's largest banking group with assets of $1.3 trillion. Western bank analysts here have begun to call the combination "Godzilla Bank."

Earlier this month, Asahi Bank Ltd. and Tokai Bank Ltd. also announced plans to merge, producing an institution with combined assets of about $500 billion. Currently, Tokyo-Mitsubishi is Japan's largest bank, with assets of about $650 billion.

Sumitomo and Sakura executives said that over the next five years they plan to eliminate 9,300 of their 33,000 employees. They also said they expected to close about 183 of their 853 branches before merging.

But many bank analysts contend that the main objective of the recent flurry of mergers is less to slash payrolls and close branches than to achieve economies of scale necessary to support huge new investments in information technology.

Japanese banks spend about a third as much on information technology as their U.S. and European counterparts, according to analysts, and lag far behind in online banking and computerized asset management.

CAPTION: Sakura Bank President Akishige Okada, left, joins Sumitomo Bank President Yoshifumi Nishikawa at the announcement of the merger plan in Tokyo.