By Chris Prentice and Elizabeth Howcroft
NEW YORK/LONDON (Reuters) -Investor sentiment remained fragile on Friday, leaving major Wall Street and European stock indexes weaker and gold prices at their highest since April and on track for bullion’s largest one-week rally in four months.
U.S. Treasury yields extended a slide after data showed March U.S. consumer sentiment fell for the first time in four months.
In a crisis that began with the collapse of U.S.-based Silicon Valley Bank last Friday, investors lost confidence in U.S. regional banks and Credit Suisse in Europe.
Risk appetite waned on Friday after showing signs of recovery on Thursday. Credit Suisse’s chief executive said on Friday the bank was working hard to stem customer outflows, although this could take time. Credit Suisse shares resumed their decline.
Analysts say the worry about a possible banking crisis is far from over despite a group of major banks injecting $30 billion in deposits into First Republic Bank, a mid-sized U.S. lender, on Thursday.
The MSCI world equity index, which tracks shares in 47 countries, reversed earlier gains and was down 0.65% by 10:51 a.m. EDT (1452 GMT).
European Central Bank supervisors do not see contagion for euro zone banks from the market turmoil, a source familiar with the content of an ad hoc supervisory board meeting earlier this week told Reuters.
The Dow Jones Industrial Average fell 398.43 points, or 1.24%, to 31,848.12; the S&P 500 lost 42.75 points, or 1.08%, at 3,917.53; and the Nasdaq Composite dropped 92.98 points, or 0.79%, to 11,624.17.
The STOXX 600 index fell 2.21%, while Europe’s broad FTSEurofirst 300 index dropped 22.85 points, or 1.31%.
The U.S. 2-year Treasury yield, which is sensitive to shifts in interest rate expectations, fell to 3.9835% compared with a previous close of 4.13%. It neared Wednesday’s six-month low of 3.72%.
The yield on benchmark 10-year Treasury notes was 3.4174% compared with 3.583% on Thursday.
The benchmark German 10-year yield fell to 2.099% versus 2.243% previously.
The European Central Bank raised rates 50 basis points on Thursday, sticking to its pledge to fight inflation even as some investors called for a pause in the rate-hiking cycle until the banking turmoil eases.
Markets are pricing in a 25 bps increase by the U.S. Federal Reserve when it meets next week, down from previous expectations for a 50 bps increase.
Fed data on Thursday showed banks sought record amounts of emergency liquidity in recent days, which helped undo months of central bank effort to shrink the size of its balance sheet.
“The fact that the Fed has been very proactive in terms of opening the liquidity tap is potentially useful and that’s stabilised things in the short term at least,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.
“It’s potentially a more stable environment, because it feels like we’ve passed the crisis point and things should normalise a bit.”
The University of Michigan’s preliminary March reading on the overall index of consumer sentiment came in at 63.4, down from 67 in the prior month. Economists polled by Reuters had forecast a preliminary reading of 67.0. But households expected inflation to subside over the next 12 months and beyond.
The euro was up 0.3% on the day at $1.0634, having gained 0.55% in a month, while the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 104.09.
Spot gold prices rose 2.21% to $1,961.59 an ounce. Bitcoin also rallied on safe-haven buying, hitting a nine-month high.
The risk-off sentiment also hit oil prices, with U.S. crude futures down 2.62% at $66.56 a barrel. Brent crude, the global benchmark, dropped to $72.87 per barrel.
(Reporting by Chris Prentice and Elizabeth Howcroft; editing by Robert Birsel, Christina Fincher and Richard Chang)
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