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World News | Wall Street wobbles, bank stocks fall, S&P 500 fluctuates

NEW YORK, March 13 (AP) – Wall Street fears that the second- and third-largest banks in U.S. history may fail, and stocks were volatile Monday as investors scrambled to find safe places to park their money.

The S&P 500 was little changed in early trade, but opened down just 1.4%.

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The biggest declines came again from banks. Investors worry that rising interest rates aimed at controlling inflation are approaching a tipping point and could devastate the banking system.

The U.S. government late Sunday announced a plan to shore up the banking sector after Silicon Valley Bank and Signature Bank collapsed on Friday.

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The biggest pressure comes from regional banks, which are a few steps down from the “too big to fail” megabanks that helped drag down the economy in 2007 and 2008. Shares of First Republic plunged 78%, even after the bank said on Sunday it had strengthened its financial position with cash from the Federal Reserve and JPMorgan.

After the 2008 financial crisis, regulators repeatedly stress-tested the big banks, but they didn’t fall as much. JPMorgan fell 0.7 percent and Bank of America fell 3.7 percent.

“Potential problem banks appear to be few so far, and importantly not extended to so-called systemically important banks,” ING analysts said.

The broader market is also doing better, as markets anticipate that all the chaos could force the Fed to go easier on its rate hikes that affect the economy. Such a move would give the economy and the banking system more breathing room, but would also give inflation more oxygen.

The Dow Jones Industrial Average was up 30 points, or 0.1%, at 31,939 as of 10:34 a.m. ET, while the Nasdaq Composite was up 0.4%.

Asian shares were mixed after the U.S. government announced plans to protect bank depositors, but losses extended as trade moved westward through Europe. Germany’s DAX fell 3 percent as banks in continental Europe fell. On Wall Street, a measure of fear among stock investors hit its highest level since October.

“It’s easier to restore liquidity in the banking system than restore confidence, and today it’s clearly the latter,” said Quincy Krosby, chief global strategist at LPL Financial.

All that fear is sending gold prices higher as investors look for what appears to be safety. It rose 2.3 percent to $1,909.50 an ounce.

U.S. Treasury prices also surged on demand for safe assets and expectations of Fed easing. That in turn sent their yields lower, with the yield on the 10-year U.S. Treasury note plunging to 3.49% from 3.70% late on Friday. This is a big move for the bond market.

The two-year Treasury yield, which is more influenced by expectations of the Federal Reserve, fell even more dramatically. It fell to 4.09% from 4.59% on Friday.

Some investors are calling for an emergency rate cut from the Fed as soon as possible to stop the bleeding. The broader expectation, however, is that the Fed may pause or delay accelerated rate hikes.

Even so, there was a sharp shift in expectations earlier last week, when many traders predicted the Fed would raise its main overnight interest rate by 0.50 percentage point when it meets later this month. Just last month, the Fed revised down to an increase of 0.25 points from the earlier 0.50 and 0.75 points.

The worry is that stubbornly high inflation will force the Fed to become more hawkish, and investors are bracing for at least a few more rate hikes after that.

“At this point, depending on how financial markets react and the eventual impact on the broader economy, we don’t rule out the possibility that the rate hike cycle may even be over, and that Fed officials’ next move may be to cut rates rather than raise them,” said NatWest chief U.S. economist Kay Kay. Vince Cummins said.

Higher interest rates can drag on inflation by slowing the economy, but they increase the risk of recession later on. They also price stocks as well as bonds already in investors’ portfolios.

The latter effect is one reason why Silicon Valley Bank is in trouble. The Fed began raising rates almost exactly a year ago, and the fastest hike in decades has brought its key overnight rate to a range of 4.50% to 4.75%. This is pretty much starting from scratch.

That hurts portfolios for banks, which typically park cash in Treasuries because they are considered one of the safest investments on earth.

The collapse of Silicon Valley Bank has reverberations around the world.

In London, the government arranged for the sale of Silicon Valley Bank UK Ltd., the British arm of the California bank, for a nominal price of 1 pound, or about $1.20.

Germany’s financial watchdog BaFin on Monday banned asset disposals and payments at Silicon Valley Bank’s German branch and imposed a moratorium, effectively closing deals with clients.

Before trading began in Asia, the U.S. Treasury, the Federal Reserve and the FDIC said on Sunday that all clients of Silicon Valley Bank would be protected and have access to their funds, announcing plans to protect the bank’s customers and prevent more bank runs. measures.

Regulators shut down Silicon Valley Bank on Friday as investors withdrew billions of dollars from the lender in a matter of hours, marking the collapse of the second-largest U.S. bank behind Washington Mutual in 2008.

They also announced Sunday that New York-based Signature Bank was seized after becoming the third-largest bank to fail in U.S. history. (Associated Press)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)

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