San Francisco Frontiers - Markets extend global rally as banking sector fears ease

A rollercoaster week was on course to end on a positive note after several Wall Street titans including JP Morgan, Bank of America and Citigroup stumped up $30 billion to deposit into troubled First Republic.

The move came as investors feared the lender could suffer a run of withdrawals by customers worried it would follow Silicon Valley bank and Signature Bank, which went under last week and fuelled fears of another financial crisis.

"The actions of America's largest banks reflect their confidence in the country's banking system," the group of 11 banks said of a plan that was coordinated by US regulators.

Earlier, European giant Credit Suisse said it would borrow nearly $54 billion made available by the Swiss central bank to "support" the group.

Markets welcomed the measures, helping the Dow and S&P 500 rally more than one percent and the Nasdaq more than two percent.

"Worries over the banking sector are easing after the big banks offer support to First Republic and as the SNB gave Credit Suisse a lifeline," said OANDA's Edward Moya.

"Banking jitters are fading quickly for now and that has everyone scrambling back into risky assets."

Hong Kong, Tokyo, Taipei, Manila and Jakarta all rose more than one percent, while Shanghai, Sydney, Mumbai, Wellington, Seoul and Bangkok were also in the green.

London, Paris and Frankfurt rose at the open, having enjoyed solid gains on Thursday, as the head of France's central bank said European lenders were "extremely solid".

However, Meera Pandit, of JPMorgan Asset Management, warned that while there was plenty of relief, traders must remain wary.

"That the market is reacting relatively positively to the fact that we are applying some guardrails here shouldn't necessarily be a catalyst for markets to move much higher," she told Bloomberg TV.

"There is still some vulnerability here to a correction because we don't know how this continues to evolve."

- Fed's next move -

Commentators said the calmer waters in the banking sector would allow investors to refocus on the long-running subject of inflation and interest rate hikes.

Before the SVB crisis unfolded, there had been a widespread expectation the US Federal Reserve would ramp up its tightening campaign next week and push on for as long as needed until it had quelled inflation.

But with SVB's demise largely blamed on the sharp rise in borrowing costs -- fuelling fears of a repeat at other banks -- speculation has swirled that the Fed would stop hiking and maybe even cut rates to provide some stability.

A below-forecast reading on US wholesale prices added to that.

However, data showing a bigger-than-expected drop in first-time unemployment claims and a surge in housing starts and building permits showed the economy remained resilient and put fresh pressure on the Fed to stick to its guns.

Observers said the European Central Bank's decision to lift rates by 50 basis points, as it had been tipped to do before last weekend, suggested the Fed would also do so.

However, it did drop a reference to the need to raise rates "significantly" going forward, which was seen as a dovish step.

Analysts at BlackRock Investment Institute said they did not think officials would crack as they were determined to defeat inflation.

They expected the ECB and the Fed to "go as far as possible to distinguish their inflation-fighting campaigns from measures to deal with bank troubles and safeguard the financial system".

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: UP 1.2 percent at 27,333.79 (close)

Hong Kong - Hang Seng Index: UP 1.6 percent at 19,518.59 (close)

Shanghai - Composite: UP 0.7 percent at 3,250.55 (close)

London - FTSE 100: UP 0.9 percent at 7,473.67

Dollar/yen: DOWN at 133.11 yen from 133.69 yen on Thursday

Euro/dollar: UP at $1.0668 from $1.0617

Pound/dollar: UP at $1.2169 from $1.2106

Euro/pound: UP at 87.66 pence from 87.62 pence

West Texas Intermediate: UP 1.0 percent at $69.05 per barrel

Brent North Sea crude: UP 1.0 percent at $75.45 per barrel

New York - Dow: UP 1.2 percent at 32,246.55 (close)

G.Miller--SFF