Sliding bank shares dragged Wall Street down on Monday with investors worried about contagion from the Silicon Valley Bank collapse, but trade was choppy and the Nasdaq composite actually ended higher as some sectors benefited from hopes the Federal Reserve could ease up on interest rates hikes.

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SVB Financial's (SIVB.O) sudden shutdown on Friday after a failed capital raise had investors worried about risks to other banks from the Fed's sharp rate hikes over the last year. But many speculated the central bank could now become less hawkish, and the yield on the 2-year Treasury tumbled.

Regulators over the weekend stepped in to restore investor confidence in the banking system, saying SVB's depositors will have access to their funds on Monday.

To some investors, the Fed's decision next week will also hinge on inflation data due this week.

"If we get shockingly bad Consumer Price Index and Producer Price Index, the Fed is going to find itself in a tough spot or a much tougher spot that it even finds itself in ahead of those prints," said Orion Advisor Solutions CIO Timothy Holland.

The Dow Jones Industrial Average (.DJI) fell 90.5 points, or 0.28%, to 31,819.14, the S&P 500 (.SPX) lost 5.83 points, or 0.15%, to 3,855.76 and the Nasdaq Composite (.IXIC) added 49.96 points, or 0.45%, to 11,188.84.

The CPI data is due on Tuesday and PPI on Wednesday.

The defensive utilities (.SPLRCU) rose 1.54% as one the best performing of the 11 major S&P sectors while interest rate sensitive groups such as real estate (.SPLRCR) and technology (.SPLRCT) also climbed.

"The market is now expecting that the Fed is likely to not raise rates this month and so they may enter a pause period," said Peter Cardillo, chief market economist at Spartan Capital Securities.

Shares of SVB's peer Signature Bank (SBNY.O), which was also shut down by regulators, were halted. Nasdaq said they would remain so until the exchange's request for additional information was "fully satisfied."

President Joe Biden vowed to do whatever was needed to address the threat to the banking system.

First Republic Bank (FRC.N) dropped 61.83% as news of fresh financing failed to reassure investors, while Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) fell 47.06% and 21.05%, respectively. Trading in the stocks was halted several times.

Weighing on the S&P 500, Charles Schwab (SCHW.N) tumbled 11.56% upon resuming trade after the financial services company reported a 28% decline in average margin balances and a 4% fall in total client assets for February.

Shares of big U.S. banks, including JPMorgan Chase & Co (JPM.N), Citigroup (C.N), and Wells Fargo (WFC.N) all lost ground. The S&P Banking Index fell 7%, its largest one-day percentage drop since June 11, 2020.

The CBOE Volatility Index (.VIX), known as Wall Street's fear gauge, rose 1.72 points to 26.52 after earlier hitting 30.81, its highest since late October.

Traders are now largely pricing in a 25 basis point rate hike from the Fed in March, with bets that the central bank will hold interest rates at their current level standing at 44.4%.

Among individual stocks, Pfizer Inc (PFE.N) was up 1.19% after the drugmaker said it would buy Seagen Inc (SGEN.O) for nearly $43 billion.

Declining issues outnumbered advancing ones on the NYSE by a 2.31-to-1 ratio; on Nasdaq, a 1.63-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 48 new lows; the Nasdaq Composite recorded 29 new highs and 526 new lows.