LONDON - Global shares hit a two-month low on Friday as investors dumped banks on fears of contagion after a capital raising at Silicon Valley Bank, with U.S. payrolls figures also a focus ahead of the Federal Reserve meeting later this month.

Crude oil was heading for its biggest weekly loss in five weeks on worries about the prospect of steep interest rate rises in the United States slowing growth and hitting fuel demand.

The yen eased after the Bank of Japan kept stimulus settings steady, while the dollar held its breath ahead of the U.S. data.

The MSCI All Country stock index was down 0.6%, hitting its lowest level since mid-January, while in Europe, the STOXX index of 600 companies tumbled 1.6%.

Silicon Valley Bank had sought on Thursday to reassure tech clients as its stock collapsed by 60% while it was attempting to raise funds to plug a $1.8 billion hole caused by the sale of a loss-making bond portfolio.

The news compounded jitters from news that crypto-focused lender Silvergate was closing down.

Silicon Valley Bank raised questions over the unrealised losses on bond portfolios among U.S. banks, and what that could mean for capital requirements, analysts said.

The concerns rippled through lenders in Europe.

The STOXX index of European bank shares sank 4.2% to its lowest level in more than a month, with Credit Suisse hitting an all-time low.

"I think it's panic and it's company specific," said Patrick Spencer, vice-chair of equities at RW Baird, adding it was a further sign of how the rise in borrowing costs and the end of cheap money was shaping markets.

"We are actually taking advantage of the panic induced selling and we are upgrading some of the regional banks," he said.

A reclassification of the U.S. S&P index next week will increase the number of banks in the benchmark to support the sector, Spencer said.

U.S. nonfarm payrolls were due before the opening bell on Wall Street, and economists have forecast they have likely increased by 205,000 last month, less than half of the huge 517,000 added in January.

"Anything more than 300,000 would blow the doors off the market," Spencer said.

ING bank said U.S. Federal Reserve Chair Jerome Powell has explicitly referred to Friday's jobs data as a key driver, together with next week’s U.S. inflation figures, ahead of the Fed’s policy decisions on March 22.

Powell has warned rates could rise further and faster if data shows that is needed to get a grip on inflation.

U.S. stock index futures were slightly weaker, though the payrolls figures would likely set the opening tone on Wall Street.

 

JAPANESE STIMULUS STEADY

The yen weakened and Japanese government bond yields plunged after the Bank of Japan opted to keep stimulus settings steady at Governor Haruhiko Kuroda's last meeting in charge, as expected.

The benchmark 10-year JGB yield, which the BOJ pins within 50 basis points either side of zero, pulled back sharply from that ceiling to last sit at 0.445%. The yen was last down about 0.4% at 136.615 per dollar after a knee-jerk drop of as much as 0.6%.

Japan's Nikkei pared earlier losses to be down 1% after the central bank decision but selling began later in the session and the index was off 1.7%.

The U.S. dollar was little changed and the yield on short-end Treasuries were slightly weaker.

Fed funds futures also rallied strongly, pulling the market-implied peak in U.S. rates from above 5.6% to just below 5.5%, and pricing about a 50% chance of a 50 basis point Fed increase this month, down from more than 70% a day earlier.

Bitcoin was off 2% at $19,924 as the fallout from the demise of Silvergate weighs on the broader mood in digital assets.

Brent crude futures eased 0.4% to $81.25 a barrel while gold was up 0.2% at $1,835 an ounce.

(Reporting by Huw Jones, Tom Westbrook, Kevin Buckland and additional reporting Scott Murdoch. Editing by Simon Cameron-Moore and Kim Coghill)