San Francisco Frontiers - Stocks extend rally as bank panic eases

Authorities in leading economies have pledged support for depositors and troubled lenders in efforts to calm the markets following the recent collapse of Silicon Valley Bank and Signature Bank in the United States.

In prepared remarks, US Treasury Secretary Janet Yellen will tell a conference of American banks that authorities are ready to protect deposits at other smaller lenders if they face bank runs "that pose the risk of contagion".

Deposit withdrawals have stabilised after US regulators stepped in last week to ensure SVB and Signature customers would still have access to their deposits.

The US Federal Reserve also introduced a new lending tool for banks in an effort to prevent a repeat of SVB's quick demise, and launched a drive with other major central banks this week to improve banks' access to liquidity.

"I believe that our actions reduced the risk of further bank failures," according to Yellen's remarks to the American Bankers Association.

The head of the association, Rob Nichols, said the sector "remains strong, resilient, well-capitalised, liquid and serves customers and communities extremely well".

The turmoil led to the Swiss government-backed buyout of troubled Credit Suisse by UBS for around $3.2 billion after frantic negotiations over the weekend.

But analysts warned it was too early to declare victory over the crisis, with the Credit Suisse takeover raising questions about which banks could be next on the chopping block.

"It's been a wild couple of weeks and while I, along with everyone else, am hopeful that the worst is behind us, I can't say I'm particularly confident," said Craig Erlam, analyst at OANDA trading platform.

While authorities can be commended "for their firefighting skills, only time will tell if they've been successful in extinguishing the flames," he said.

Wall Street opened higher on Tuesday while Europe's main indices gained almost two percent in afternoon deals as a relief rally continued following last week's drubbing.

European bank shares surged, with Commerzbank up almost seven percent, Barclays winning 5.6 percent and BNP Paribas up 4.3 percent.

On Wall Street, shares of First Republic Bank rebounded by 24 percent as the Wall Street Journal reported that JPMorgan Chase was leading talks with other big banks on providing fresh support to the troubled lender.

Major US banks already agreed to inject $30 billion into First Republic last week.

- Fed spotlight -

The spotlight will turn to the US Federal Reserve on Wednesday, when it will announce its latest interest rate decision.

The upheaval in the banking sector has led traders to re-evaluate their bets on the Fed's plans, with speculation swirling that it could cut borrowing costs by the end of the year to provide further stability.

This would follow a series of aggressive rate hikes carried out by the Fed and other central banks since late 2021 aimed at cooling soaring inflation.

Before the banking crisis kicked off, expectations were for US borrowing costs to go as high as six percent, but now forecasts are for them to end at around four percent.

They are currently at 4.5-4.75 percent, and there is much talk about whether the Fed holds fire on the decision or lifts rates by 25 basis points.

Lower expectations for US rate rises weighed on the dollar, while oil prices firmed after heavy losses in recent sessions as investors fretted that contagion from the banking woes could hurt economic growth.

- Key figures around 1340 GMT -

New York - Dow: UP 0.9 percent at 32,541.18 points

London - FTSE 100: UP 1.9 percent at 7,544.22

Frankfurt - DAX: UP 1.9 percent at 15,213.11

Paris - CAC 40: UP 1.8 percent at 7,138.40

EURO STOXX 50: UP 1.8 percent at 4,195.41

Hong Kong - Hang Seng Index: UP 1.4 percent at 19,258.76 (close)

Shanghai - Composite: UP 0.6 percent at 3,255.65 (close)

Tokyo - Nikkei 225: Closed for a holiday

Euro/dollar: UP at $1.0776 from $1.0726 on Monday

Pound/dollar: DOWN at $1.2226 from $1.2280

Euro/pound: UP at 88.14 pence from 87.32 pence

Dollar/yen: UP at 132.30 yen from 131.32 yen

Brent North Sea crude: UP 1.8 percent at $75.12 per barrel

West Texas Intermediate: UP 2.2 percent at $69.29 per barrel

burs-lth/gw

A.Smith--SFF