Wall St ends volatile week higher as bank fears ease

US stocks have closed higher, marking the end of a tumultuous week as Federal Reserve officials calmed investor fears over a potential liquidity crisis in the banking sector.

While all three major US stock indices started the session sharply lower on the heels of a sell-off among European banks, those losses reversed by closing bell, repeating the intraday roller coaster ride of recent sessions.

At the conclusion of an up-and-down week, marked by a Fed interest rate hike and mounting worries over the health of the banking system, all three indices notched weekly gains.

“Equity markets drifted higher as concerns lingered about another banking flare up in the US or abroad,” said David Carter, managing director at JPMorgan Private Bank in New York.

“Wall Street is taking its cues from Washington and other capitals as it relates to interest rates and banking regulations.”

In separate appearances, three regional Fed bank presidents said that their confidence that the banking system was not facing a liquidity crisis is what led to the decision to implement a 25-basis point policy rate hike on Wednesday.

But while Fed officials continue to see additional rate hikes as a strong possibility, financial markets favouring the likelihood of a no hike at all at the conclusion of its next policy meeting in May.

“The Fed may be jaw-boning a bit as it says more rate increases may be coming this year,” JPMorgan’s Carter said.

“It helps both their inflation goal and suggests confidence in our economic system.”

Worries over potential contagion beyond regional banks threatening to spread to their larger peers was sparked by a sell-off of European bank shares.

That sell-off was prompted by the rising cost of insuring Deutsche Bank’s debt, expressed by its credit default swaps, coming on the heels of the state-sponsored buyout of Credit Suisse, has fed into the narrative of sector-wide stress.

But those worries eased by midafternoon.

While the S&P Bank index ended modestly lower, the KBW Regional Bank index jumped 2.9 per cent.

The Dow Jones Industrial Average rose 132.28 points, or 0.41 per cent, to 32,237.53, the S&P 500 gained 22.27 points, or 0.56 per cent, to 3,970.99 and the Nasdaq Composite added 36.56 points, or 0.31 per cent, to 11,823.96.

Nine of the 11 major sectors in the S&P 500, with defensive sectors such as utilities and real estate enjoying the biggest percentage gains. Consumer discretionary and financials were the two losers.

US-traded shares of Deutsche Bank dropped 3.1 per cent.

Shares of major US banks, such as JPMorgan Chase & Co , Wells Fargo pared their losses but still ended lower, while Bank of America flipped green.

Regional lenders PacWest Bancorp, Western Alliance Bancorp jumped 3.2 per cent and 5.8 per cent, respectively, while First Republic Bank dropped 1.4 per cent.

Activision Blizzard jumped 5.9 per cent after the UK competition regulator dropped some competition concerns in the Microsoft-Activision deal.