* First Republic Bank tumbles on suspending dividend
* SVB Financial seeks bankruptcy protection
* FedEx jumps on full-year profit forecast raise
* Indexes down: Dow 1.19%, S&P 1.10%, Nasdaq 0.74%
NEW YORK, March 17 (Reuters) - Wall Street closed lower on Friday, marking the end of a tumultuous week dominated by an unfolding crisis in the banking sector and the gathering storm clouds of possible recession.
All three indexes ended the session deep in negative territory, with financial stocks down the most among the major sectors of the S&P 500.
For the week, while the benchmark S&P 500 ended higher than last Friday's close, the Nasdaq and the Dow posted weekly declines.
SVB Financial Group announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank, which sparked fears of contagion throughout the global banking system.
"(The sell-off) is a bit of an overreaction," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. "However, there is validity to some of the concerns regarding overall liquidity and a potential liquidity crunch."
Those concerns have spread to Europe, as Credit Suisse shares stumbled over liquidity worries, prompting policymakers to scramble to reassure markets.
"This goes a lot further than just a run on SVB or First Republic, it goes to the real impact these interest rate hikes are having on capital and balance sheets," Pursche added. "And you're seeing it impact large institutions like Credit Suisse, and that’s got people rattled."
Over the last two weeks, the S&P Banking index and the KBW Regional Banking index plunged by 4.6% and 5.4%, respectively, their largest two-week drops since March 2020.
First Republic Bank plunged 32.8% after the bank announced it was suspending its dividend, reversing Thursday's surge which was sparked by an unprecedented $30 billion rescue package from large financial institutions
Among First Republic's peers, PacWest Bancorp fell 19.0% while Western Alliance slid 15.1%.
U.S.-traded shares of Credit Suisse also closed sharply lower, down 6.9%.
Investors now turn their gaze to the Federal Reserve's two-day monetary policy meeting next week.
In view of recent developments in the banking sector and data suggesting a softening economy, investors have adjusted their expectations regarding the size and duration of the Fed's restrictive interest rate hikes.
"This mini banking crisis has increased the chance of recession and accelerated the slowdown timeline for the economy," Pursche said. "It's natural that the Fed should re-examine its course of action, but it's still very clear that while inflation is slowing it's still very much a concern and needs to be brought under control."
At last glance, financial markets have priced in a 60.5% likelihood that the central bank will raise its key target rate by 25 basis points, and a 39.5% probability that it will let the current rate stand, according to CME's FedWatch tool.
The Dow Jones Industrial Average fell 384.57 points, or 1.19%, to 31,861.98, the S&P 500 lost 43.64 points, or 1.10%, to 3,916.64 and the Nasdaq Composite dropped 86.76 points, or 0.74%, to 11,630.51.
All 11 major sectors of the S&P 500 ended the session in negative territory.
On the upside, FedEx Corp jumped 8.0% after hiking its current fiscal year forecast.
Declining issues outnumbered advancing ones on the NYSE by a 4.07-to-1 ratio; on Nasdaq, a 2.94-to-1 ratio favored decliners.
The S&P 500 posted 5 new 52-week highs and 20 new lows; the Nasdaq Composite recorded 29 new highs and 320 new lows.
Volume on U.S. exchanges was 19.41 billion shares, compared with the 12.49 billion average over the last 20 trading days.