Intensifying credit fears sink stocks
Investors were busy examining the plan from JPMorgan Chase & Co. and the New York Federal Reserve to provide secured funding to Bear Stearns for an initial period of 28 days. The move offers Bear Stearns relief from a sudden liquidity crunch and could help instill confidence in the stagnant credit markets.
Bear Stearns shares fell sharply, dragging down other financial companies. Bear skidded $24.45, or 43 percent, to $32.55.
Stocks showed moderate gains in the early going after a Labor Department report showed the Consumer Price Index remained flat for February. Wall Street has been expecting inflation would show an increase.
But the gains quickly disappeared after investors learned more about how close Bear Stearns appeared to have come to financial implosion.
"The Bear Stearns news reversed the early positive sentiment from the inflation data," said Peter Cardillo, chief market economist at Avalon Partners. "There had been nervousness about Bear Stearns for some time and now the market's concerns about the company have been proven true."
In the first hour of trading, the Dow Jones industrial average fell 207.60, or 1.71 percent, to 11,938.14 after having fallen as much as 300 points.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 30.17, or 2.29 percent, to 1,285.31, and the Nasdaq composite index fell 45.82, or 2.02 percent, to 2,217.79.
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