By Amruta Khandekar and Ankika Biswas
(Reuters) - The S&P 500 and the Dow Jones gained on Monday as a state-backed rescue of embattled lender Credit Suisse (SIX:CSGN) helped calm some jitters around a bigger banking crisis, while investors weighed odds of the Federal Reserve pausing its rate hikes this week.
Traders have raised bets of the Fed likely hitting a pause on rate hikes on Wednesday to ensure financial stability as bank sector troubles triggered by the collapse of Silicon Valley Bank and Signature Bank threaten to snowball.
Over the weekend, UBS agreed to buy rival Credit Suisse for $3.23 billion, in a merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking.
U.S.-listed shares of Credit Suisse plummeted 48.5% to hit a fresh record low, while UBS reversed premarket declines to rise 7.8%.
Big U.S. banks such as JPMorgan Chase & Co (NYSE:JPM), Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) rose between 0.6% and 1.6%.
Regional bank First Republic Bank slid 8.9% following a downgrade by S&P Global (NYSE:SPGI) and a report of more fundraising that fanned worries about the bank's liquidity despite a $30-billion rescue last week. Shares of the bank were halted due to volatility.
PacWest Bancorp jumped 21% after the bank said deposit outflows had stabilized, while New York Community Bancorp also gained 33% after the bank's unit agreed to buy deposits and loans from Signature Bank.
"There (is) more good news than bad news on the banking front," said Art Hogan, chief market strategist at B Riley Wealth.
"First and foremost, the Credit Suisse, UBS merger certainly takes a lot of stress out of the global banking system and Signature Bank finding a suitor over the weekend was also something that investors are at least feeling more confident about."
The S&P Banking index and the KBW Regional Banking index, which on Friday had logged their largest two-week drop since March 2020, rose 1.4% and 3.2%, respectively, in early trade.
As U.S. 10-year Treasury yields gained, shares of Big Tech and growth stocks such as Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) fell between 0.8% and 1%, pressuring the Nasdaq.
Traders' bets were nearly equally split between odds of a no-hike scenario or a 25-basis-point rate hike by the Fed on March 22.
Investors also await economic data including existing home sales, weekly jobless claims and durable goods this week to gauge the strength of the U.S. economy.
At 9:43 a.m. ET, the Dow Jones Industrial Average was up 221.37 points, or 0.69%, at 32,083.35, the S&P 500 was up 11.27 points, or 0.29%, at 3,927.91, and the Nasdaq Composite was down 39.59 points, or 0.34%, at 11,590.93.
Among other stocks, Bed Bath & Beyond (NASDAQ:BBBY) dropped 10.1% after seeking shareholder approval for a reverse stock split.
Advancing issues outnumbered decliners by a 2.81-to-1 ratio on the NYSE and by a 1.48-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week high and three new lows, while the Nasdaq recorded 11 new highs and 76 new lows.