Shares rise as bank support cheers investors

By Herbert Lash and Amanda Cooper

NEW YORK/LONDON (Reuters) -Global shares rose on Wednesday as the equity market took heart from greater stability in the banking sector, while Treasury yields reversed course and fell, even as uncertainty still lingered among bond investors over the economic outlook.

The sale of assets in Silicon Valley Bank (SVB), the regional U.S. lender that collapsed earlier this month, has helped prop up risk appetite among stock investors. Some market stress have eased, which has given equities, cryptocurrencies and commodities a boost recently.

The MSCI all-world country index, gauge of stocks across the globe, gained 0.90% and the pan-European STOXX 600 index rose 1.16%.

The main stock indexes on Wall Street gained, with all 11 sectors of the S&P 500 in the green. Small caps and semiconductors advanced, while value shares rose more than growth.

“I don‘t see there being a banking crisis. We have a few specific banks in crisis,” said Burns McKinney, a portfolio manager at NFJ Investment Group LLC in Dallas. “There wasn’t credit risk, it was interest rate risk. Its not something systemic.”

European stocks rose due in part to a rise in bank shares after UBS said it would rehire Sergio Ermotti to lead the company following its takeover of Credit Suisse.

The economic backdrop is healthier than it was six months ago and despite some parallels with the financial crisis of 2008, current issues in the banking sector appear more contained for the moment. But, given the uncertainty over the outlook for global interest rates, the mood is nervous.

The Dow Jones Industrial Average rose 0.58%, the S&P 500 gained 0.90% and the Nasdaq Composite added 1.1%.

“Sentiment is skittish at the moment and markets will be prone to swings,” Kallum Pickering, senior economist at Berenberg, said.

In the first congressional hearing into the collapse of two U.S. regional lenders, lawmakers pressed the Federal Reserves top banking regulator on whether the central bank should have been more aggressive in its oversight of SVB.

Michael Barr, the Feds vice chairman for supervision, criticised SVB for going months without a chief risk officer and how it modelled interest rate risk. He said on Wednesday he first became aware of stress at the bank the afternoon before SVB collapsed.

“From a macroeconomic perspective, we should be relaxed about the fact that major banks, on both sides of the Atlantic, are well capitalised, have lots of deposits, and regulators and central banks seem absolutely committed to preventing any significant systemic event,” Pickering said.

The U.S. regional KBW bank index has tumbled about 25% this month, but has gained about 3.5% this week as tensions eased.

A survey on Wednesday showed German consumer sentiment is set to improve in April, thanks to a drop in energy prices, although a full recovery isnt likely any time soon.

Worries over inflation have prompted investors to reassess their expectations for monetary policy from a number of major central banks, including the European Central Bank and the Federal Reserve.

Markets are now pricing in a 64.8% chance of the Fed leaving interest rates unchanged at its next meeting in May, according to CMEs FedWatch Tool.

The dollar index, which measures the performance of the U.S. currency against six others, rose 0.185%, while the euro was down 0.08% to $1.0834.

The Japanese yen weakened 1.20% to 132.49 per dollar.

U.S. Treasury yields edged lower, with the benchmark 10-year note down 1.4 basis points at 3.554% and the two-year note yield down 2.9 bp at 4.033%.

Two-year yields have risen by a full 50 bps from Fridays six-month lows, reflecting greater investor confidence.

Gold prices slipped as upbeat equities and Treasury yields weighed, but declines in safe-haven bullion have been fairly contained so far, signaling lingering worries about the banking sector.

Spot gold dropped 0.5% to $1,964.00 an ounce.

Oil rose for a third-straight session on Wednesday as a halt to some exports from Iraqi Kurdistan raised concerns of tightening supply, and as easing fears of a global banking crisis supported risk sentiment in the wider markets.

U.S. crude recently rose 0.97% to $73.91 per barrel and Brent was at $79.11, up 0.58% on the day.

(Editing by Shri Navaratnam, Jacqueline Wong, William Maclean and Andrea Ricci)