Prime lending rate cut by Citibank to 18 1/2%

Citibank, the nation's second largest bank, Tuesday cut its prime lending rate to 18 1/2 percent from 19 percent in the face of a firming in the cost of bank funds. Chemical Bank, ranked sixth in size, took a similar action late Monday, as did a few regional banks. Chicago's Continental Illinois initiated the move to the 18 1/2 percent prime rate last week.

But banks remain cautious about lowering the rate charged top-rated business borrowers for loans in a very nervous environment for short-term rates. With the money supply showing a distinct firming trend, market watchers fear a renew ed push on bank reserves by the Federal Reserve.