By Amruta Khandekar and Shubham Batra

(Reuters) - Wall Street's main indexes struggled for direction on Wednesday as investors refrained from making large bets ahead of the outcome of the Federal Reserve's rate-setting meeting amid turmoil in the banking sector.

Traders have halved the size of the expected interest rate hike to 25 basis points following concerns about liquidity in the banking sector, with some pointing to the Fed's aggressive monetary tightening over the past year as one of the reasons for the crisis.

Analysts have said a pause was unlikely as it would indicate the banking turmoil, sparked by the failure of two U.S. regional lenders, had rattled the central bank enough to change its tough stance on taming inflation.

The Fed's two-day policy meeting will end at 2 p.m. ET (1800 GMT), with investors keenly awaiting Chair Jerome Powell's conference at 2:30 p.m. ET to gauge the central bank’s rate-hike trajectory.

"Usually ahead of any event that is likely to cause volatility, markets tend to be quiet," said Randy Frederick, managing director of trading and derivatives at (NYSE:) in Austin, Texas.

"If we get a complete pause with no hike, I do think the markets could get volatile and actually could go down because it may create the perception for some people that perhaps the banking issues are much more severe than they really are."

Seven of the S&P's 11 major sectors were in the red, with rate-sensitive real estate stocks falling 1.9% to their lowest level since Nov. 4.

Wall Street's main indexes notched gains in the past two straight sessions, after the rescue of Credit Suisse as well as measures by central banks to boost liquidity helped soothe some worries about risks to other banks.

However, a scramble by troubled regional U.S. lender (NYSE:) to secure a capital infusion has kept alive some worries about the banking sector.

Shares of First Republic slipped 2.2% in volatile trade amid worries that it may need to downsize or seek government support, while peer PacWest Bancorp slumped 10.1%.

Western Alliance (NYSE:) Bancorp, however, rose 4.6%.

At 11:36 a.m. ET, the was down 33.51 points, or 0.10%, at 32,527.09, the was up 3.18 points, or 0.08%, at 4,006.05, and the was up 31.20 points, or 0.26%, at 11,891.31.

Among other stocks, Virgin Orbit Holdings Inc soared 42.3% after Reuters reported the satellite launch firm plans to recall a small group of employees from a near company-wide furlough to work on rocket upgrades.

(NYSE:) jumped 43.2% after the company posted a surprise profit for the fourth quarter, helped by lower costs and job cuts.

Co (NYSE:) rose 23.0% after the used-car retailer forecast smaller core loss in the current quarter.

Declining issues outnumbered advancers by a 1.13-to-1 ratio on the NYSE and by a 1.44-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and six new lows, while the Nasdaq recorded 27 new highs and 75 new lows.