Wall Street Steadies; Small Banks Continue to Slide

NEW YORK (AP) -- Most of Wall Street is steadying itself on Thursday, though stocks of smaller U.S. banks are continuing to tumble as investors hunt for what may be next to crack in the struggling industry.

The S&P 500 was 0.5% lower in early trading following a whirlwind several days dominated by worries about banks. They may be bending under the weight of the fastest set of hikes to interest rates in decades.

The Dow Jones Industrial Average was down 244 points, or 0.8%, at 31,628 as of 10:07 a.m. Eastern time, and the Nasdaq composite was 0.1% lower.

Across the Atlantic, European stocks were modestly higher after the European Central Bank announced a hefty increase to interest rates. A day earlier, they had dropped sharply on worries about Credit Suisse. The Swiss bank has been battling troubles for years, but its plunge to a record low raised worries just as more attention shines on the wider industry.

Credit Suisse's stock in Switzerland leaped nearly 15% Thursday after it said it will strengthen its finances by borrowing up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.

The move helped to calm worries about the gigantic bank, which operates globally. In the U.S., rival banks seen as "too big to fail" were holding relatively steady after falling a day before. JPMorgan Chase fell 1.1%, and Bank of America slipped 0.6%.

But smaller U.S. banks continued to drop as investors looked for others that could suffer a similar run by depositors as Silicon Valley Bank, which collapsed last week into the second-biggest bank failure in U.S. history.

Wall Street has focused on banks with many depositors above the $250,000 limit that's insured by the Federal Deposit Insurance Corp., as well those that serve lots of tech startups and other highly connected people that can spread worries about a bank's strength quickly.

First Republic Bank has been at the center of the market's swivels, and it fell 28.9%. It's down nearly 73% this week alone.

Much of the damage for banks is seen as the result of the Federal Reserve's fastest barrage of hikes to interest rates in decades. They've shocked the system following years of historically easy conditions in hopes of driving down painfully high inflation.

Higher rates can tame inflation by slowing the economy, but they raise the risk of a recession later on. They also hurt prices for stocks, bonds and other investments. That latter factor was one of the issues hurting Silicon Valley Bank because high rates forced down the value of its bond investments.

Wall Street increasingly expects banks' struggles to push the Federal Reserve to pause its hikes to rates next week, or at least to refrain from increasing the size of them as it had been potentially signaling.

The European Central Bank on Thursday raised its key interest rate by half a percentage point, brushing aside speculation that it may reduce the size because of all the turmoil around banks.

Some of Wall Street's wildest action this week has been in the bond market, as traders rush to guess what all the banking woes will mean for the path of interest rates.

The yield on the 10-year Treasury fell to 3.43% from 3.47% late Wednesday. It was above 4% earlier this month, and it helps set rates for mortgages and other important loans.

All the stress in the banking system is raising worries about a potential recession because of how important smaller and mid-sized banks are to making loans to businesses across the country. Oil prices have slid this week on such fears.

Economists at Goldman Sachs also raised the probability they see of a recession in the next 12 months up to 35% from 25%. They cited uncertainty in the near term about stress on small banks.

Reports on the U.S. economy, meanwhile, continue to show mixed signals.

The job market looks like it's remaining remarkably solid, and a report said fewer workers applied for unemployment benefits last week than expected. Layoffs have stayed close to historic lows, even as the Federal Reserve has hiked rates.

But other pockets of the economy are continuing to show weakness. Manufacturing has struggled, for example, and a measure of activity in the mid-Atlantic region weakened by more than expected.

The housing market has also been struggling under the weight of higher mortgage rates, though homebuilders broke ground on more projects last month than expected. That could be a signal the industry is finding some stability.