LONDON - Europe's bank shares suffered their biggest fall in over a year and bond markets saw a gigantic repricing of rate hike bets on Monday as global efforts to limit the fallout from the collapse of Silicon Valley Bank (SVB) failed to ease fears.

The dollar slid too as Wall Street heavyweights such as Goldman Sachs predicted the U.S. Federal Reserve would no longer lift interest rates next week, capping the biggest three-day rally for short-dated Treasuries since 1987.

Europe's bank index tanked 6% having shed 3.8% on Friday. HSBC's London listed dropped 1.45% after it said it would acquire the UK subsidiary of stricken Silicon Valley Bank for the token amount of 1 pound ($1.21).

Over the weekend, the Fed and U.S. Treasury announced a range of measures to stabilise the banking system and said depositors at SVB would have access to their deposits on Monday.

The Fed also said it would make additional funding available through a new "Bank Term Funding Program", which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.

"We are seeing a classic flight to safety," said Tom Caddick managing director at Nedgroup Investments. "Higher interest rates and a slowing economy was always going to bite."

U.S. authorities have also taken over New York-based Signature Bank, the second bank failure in a matter of days.

Analysts noted that, importantly, the Fed would accept collateral at par rather than marking to market, allowing banks to borrow funds without having to sell assets at a loss.

One glimmer of hope was that futures markets showed the Wall Street's benchmark S&P 500 opening fractionally higher later.

HEADACHE FOR THE FED

Such was the concern about financial stability that investors speculated the Fed would now be reluctant to rock the boat by lifting interest rates by a super-sized 50 basis points next week - and might not even hike at all.

Fed fund futures surged to price out any chance of a half-point hike, compared with around 70% before the SVB news broke last week. Instead, futures implied around a 14% chance the Fed would stand pat.

While Goldman Sachs said in a note that its analysts no longer expect the Fed to deliver a rate hike at its next meeting on March 22, others remained cautious.

The volatility today in markets should become clearer once central banks including the ECB, Fed and Bank of England can set out their next steps, said James Rossiter, head of global macro strategy at TD Securities in London.

"Other non-affected banks may take a risk adverse approach to lending which may tighten financial conditions and do some f the Fed's work for them," he said adding that central banks before rate decisions go into a quiet period, unable to guide the markets on their next step.

"When they do get around to giving their views a lot of today's confusion will end. It'll be crystal clear official statements that the economy and markets can take guidance from," he said.

Such talk, combined with the shift to safety, saw yields on two-year Treasuries rise at 1158 GMT to 4.63%, a world away from last week's 5.08% peak.

Yields were now down 66 basis points in just three sessions, a drop not seen since the Black Monday market crash in 1987.

Much will depend on what U.S. consumer price figures reveal on Tuesday, with an obvious risk that a high reading will pile pressure on the Fed to hike aggressively even with the financial system under strain.

The European Central Bank meets on Thursday and is still widely expected to lift its rates by 50 basis points and to flag more tightening ahead, though it will now have to take financial stability into account.

In currency markets, the dollar index, which measures the greenback's value against a basket of currencies, fell 0.4%. The pound and euro both rose around 0.4% and 0.3% while the safe-have Japanese yen surged 1.6%.

Gold climbed 1.18% as well to $1,889 an ounce, having jumped 2% on Friday. Oil prices lost over 2.7% though with Brent back at $80.54 a barrel and U.S. crude at $74.44 per barrel. ($1 = 0.8296 pounds)

(Reporting by Nell Mackenzie, additional reporting Harry Robertson; Editing by Dhara Ranasighe and Ed Osmond)