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Wall St equities gain, Treasury yields rise as bank worries ease

Traders work on the floor of the NYSE in New York

By Sinéad Carew

NEW YORK (Reuters) - Wall Street equities gained and U.S. Treasury yields rose on Monday as investor concerns about the financial system were calmed after First Citizens BancShares said it would take on the deposits and loans of failed Silicon Valley Bank.

The deal offered a respite after weeks of turmoil prompted by the collapse of tech-focused Silicon Valley Bank and punctuated by more bank failures and rescues. And on Saturday Bloomberg News reported that U.S. authorities are considering the expansion of an emergency lending facility that would offer banks more support, easing concerns about contagion.

U.S. Treasury yields rose on optimism that stress in the banking sector could be contained, and as the Treasury Department saw soft demand for a sale of two-year notes.

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The S&P 500 bank index, after closing down more than 22% for the month-to-date on Friday, finished up 3% on the day. In Europe, Deutsche Bank shares rose 6% after falling sharply on Friday with fears spreading to the United States after the cost of insuring its debt against default jumped.

"The main driver to (Monday's) sentiment has been the banking news over the weekend," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

Citing the First Citizens deal and the potential for expansion of emergency U.S. lending, James said there was a "sigh of relief" on Monday for the banking sector "which has had a giant anchor around its neck for the last three weeks."

While the weekend's news helped Monday's mood, it did not completely dispel concerns about the bank sector and the impact of higher interest rates on the global economy, which has also been struggling with stubbornly high inflation.

For the underperformance of rate-sensitive sectors such as technology on Monday, James pointed to an increased probability that the U.S. Federal Reserve would raise interest rates in May compared with Friday's expectations. The central bank has been raising rates for a year as it battles inflation.

"The greater the likelihood of no additional bank failures the easier potentially it would be for the Fed to continue rate hikes," James said.

The Dow Jones Industrial Average rose 194.55 points, or 0.6%, to 32,432.08, the S&P 500 gained 6.54 points, or 0.16%, to 3,977.53 and the Nasdaq Composite dropped 55.12 points, or 0.47%, to 11,768.84.

The pan-European STOXX 600 index earlier closed up 1.05% while the MSCI's gauge of stocks across the globe gained 0.23%.

Emerging market stocks lost 0.84%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.88% lower, while Japan's Nikkei rose 0.33%.

DOLLAR FLAT

The dollar rose to a five-day high against the Japanese yen on Monday as authorities' efforts to rein in worries over the global banking system helped soothe investor nerves.

The greenback traded in a narrow range against most major currencies as investors appeared hesitant to place big wagers as they sought clarity on the fallout from the recent collapse of two U.S. lenders and the Credit Suisse rescue last week by rival UBS.

U.S. depositors have been fleeing smaller banks for larger institutions or to money market funds. Flows to such funds have risen by more than $300 billion in the past month to a record above $5.1 trillion, according to Bank of America, citing figures from EPFR data provider.

The Japanese yen weakened 0.64% versus the greenback at 131.56 per dollar but the dollar index, which measures the greenback against a basket of major currencies, fell 0.155%.

The euro was up 0.36% to $1.0798 while Sterling was last trading at $1.2286, up 0.47% on the day.

The Mexican peso gained 0.54% versus the U.S. dollar at 18.34 and the Canadian dollar rose 0.66% versus the greenback.

Brad Bechtel, global head of FX at Jefferies, described a "state of anxious calm" since there were no new emergencies over the weekend.

Oil prices rallied after Iraq was forced to halt some crude exports from its semi-autonomous Kurdistan region, with an additional boost from steps to stem a potential banking crisis that could potentially have hit oil demand. [O/R]

U.S. crude prices settled up 5.13% to $72.81 per barrel and Brent finished at $78.12, up 4.17% on the day.

Gold prices slipped as investors scaled back on safe-haven trades as they dipped into riskier bets such as equities. Spot gold dropped 1.0% to $1,957.22 an ounce. U.S. gold futures fell 1.28% to $1,956.80 an ounce.

In cryptocurrencies, Bitcoin fell 3.59% to $26,998.00.

(Reporting by Sinéad Carew, Karen Brettell, Saqib Iqbal Ahmed, Nell Mackenzie and Wayne Cole; Editing by Sam Holmes, Jacqueline Wong, Peter Graff, Will Dunham and Tomasz Janowski)