Sawt Falasteen - Biden reassures Wall Street but Europe slumps on bank worries

Meanwhile, US bond yields fell as investors judged the turmoil in the regional banking sector could push the Federal Reserve to become gun-shy on raising interest rates, a move which would be positive for stocks but pushed down the dollar.

After opening lower, Wall Street rebounded into positive territory after about an hour of trading, with the Dow up 0.5 percent in midday trading.

Biden said "Americans can have confidence that the banking system is safe" as he vowed to push for tougher regulations on banks.

Fears that the collapse of Silicon Valley Bank (SVB) could spark contagion throughout the banking system forced the Fed, the Treasury Department and Federal Deposit Insurance Corp. over the weekend to promise to fully protect all depositors and give backup to any lenders struggling to find cash, providing easier terms on short-term loans.

On Sunday, New York regulators said they had closed another lender, Signature Bank.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said all the news about contagion risk "will likely interfere with Federal Reserve rate hike expectations, as well, as the Fed may want to think twice before stepping on the gas this month."

Briefing.com analyst Patrick O'Hare said the market is now showing an even chance of no rate hike at next week's Fed policy meeting.

After Fed chief Jerome Powell's remarks to lawmakers last week, over three-quarters of investor forecast a 0.5-percentage-point hike in rates, O'Hare said.

"The prospect of further interest rate hikes has certainly receded today, but the real focus for now is on worrying about how far the crisis will spread," said Chris Beauchamp, chief market analyst at online trading platform IG.

The Fed's sharp jump in interest rates, which sought to tame inflation, helped provoke SVB's collapse as the prices for securities on its books fell below their purchase price -- and this could be a problem for other banks.

Shares in First Republic Bank tumbled 66 percent, PacWest Bancorp 32 percent, KeyCorp 29 percent and Comerica 25 percent in midday trading.

- 'Weakest link' -

"The Fed is now in question over even a 25-point hike at the next meeting," Strategic Alpha analyst Maurice Pomery told AFP.

"The issue for me is that many businesses were constructed on zero interest rates, leverage and debt model -- which with rising rates is no longer viable," he warned.

Fears about contagion dominated trading in Europe.

Germany's finance watchdog insisted the collapse of SVB posed no threat to financial stability, as did the French central bank.

France's Finance Minister Bruno Le Maire told investors to "calm down" after shares in French banks tumbled.

Shares in French banks BNP Paribas fell 6.8 percent and Societe Generale 6.2 percent. Italy's Unicredit tumbled 9.0 percent and Spain's Santander 7.4 percent. Deutsche Bank shares fell 4.9 percent.

The Paris and Frankfurt stock markets closed around three percent lower while Milan fell four percent. London was down 2.6 percent.

"Far from calming nerves, fear of contagion has ramped up further with investors dumping risk assets across Europe," City Index analyst Fiona Cincotta told AFP.

"Banks are leading the charge southwards with investors taking aim at Spanish and Italian banks, suggesting that these are considered the weakest links as fears rise."

- Key figures around 1630 GMT -

New York - Dow: UP 0.5 percent at 32,068.85 points

New York - S&P 500: UP 0.5 percent at 3,882.54

New York - Nasdaq Composite: UP 1.2 percent at 11,266.86

London - FTSE 100: DOWN 2.6 percent at 7,548.63 (close)

Frankfurt - DAX: DOWN 3.0 percent at 14,959.47 (close)

Paris - CAC 40: DOWN 2.9 percent at 7,011.50 (close)

Milan - FTSE MIB: DOWN 4.0 percent at 26,183.54 (close)

EURO STOXX 50: DOWN 3.1 percent at 4,096.54 (close)

Tokyo - Nikkei 225: DOWN 1.1 percent at 27,832.96 (close)

Hong Kong - Hang Seng Index: UP 2.0 percent at 19,695.97 (close)

Shanghai - Composite: UP 1.2 percent at 3,268.70 (close)

Dollar/yen: DOWN at 133.26 yen from 135.09 yen on Friday

Euro/dollar: UP at $1.0737 from $1.0643

Pound/dollar: UP at $1.2155 from $1.2035

Euro/pound: DOWN at 88.34 pence from 88.40 pence

West Texas Intermediate: DOWN 1.8 percent at $75.33 per barrel

Brent North Sea crude: DOWN 1.6 percent at $81.48 per barrel

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