US stocks ended the day higher after a rescue package for First Republic Bank was secured, sparking a rally in shares of troubled regional lenders. Treasuries fell after the European Central Bank raised interest rates, fueling speculation that the US Federal Reserve will do the same next week.
The S&P 500 gained nearly 2% after the country's largest banks agreed to contribute $30 billion in deposits to First Republic. Before earlier this week, the regional lender's shares had fallen more than 60% as investors speculated that the bank could be the next to fail after two high-profile failures sparked the crisis last week. The regional bank index rose, but it is still down more than 20% in March. The Nasdaq composite index rose 2.7% to a one-month high.
The news from the First Republic comes after a lifeline from Swiss regulators overnight stabilized Credit Suisse Group AG, easing fears that the European lender would trigger a regional crisis. On Thursday, the idea of a forced merger with a larger rival, UBS Group AG, was shot down. Credit Suisse depository receipts ended the session unchanged, as the cost of insuring the Swiss bank's debt has risen.
Markets were also digesting a European Central Bank rate hike and comments from the ECB president that inflation is expected to remain excessively high for an extended period of time. Next week, the Federal Reserve is expected to raise interest rates by a quarter percentage point. Rising expectations for that move pushed two-year Treasury yields back above 4%, though they remained lower than a week ago.