Stocks slide as Bear Stearns renews credit fears
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Fri, 14 Mar 2008 18:15:06 GMT |
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By Justin GrantNEW YORK (Reuters) - Stocks fell on Friday after a cash crunch forced Bear Stearns to secure emergency funding, triggering a sell-off in financial shares and fanning concerns about an escalating credit crisis.All three major indexes briefly lost more than 2 percent after JPMorgan Chase & Co and the Federal Reserve Bank of New York agreed to provide emergency short-term financing to Bear Stearns, the fifth-largest U.S. investment bank.Bear Stearns, whose stock plunged as much as 50 percent in morning trading, said the money would let it continue normal operations.The Standard & Poor's financial index fell 3.7 percent as investors feared there could be more trouble in the financial sector.Exposure to the escalating housing crisis prompted Moody's Investors Service to downgrade Washington Mutual to one notch above junk status, sending the largest U.S. savings-and-loan's shares down 9.7 percent.Top drags included shares of Lehman Brothers Holdings , which fell 10.7 percent; Citigroup Inc , down 5.7 percent, and JPMorgan Chase, which fell 3.4 percent."If you think about Bear Stearns, the leverage of these investment banks is huge. What's going to have to get liquidated?," asked Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, California.The Dow Jones industrial average <.DJI> shed 228.52 points, or 1.88 percent, to 11,917.22. The Standard & Poor's 500 Index <.SPX> slid 29.74 points, or 2.26 percent, to 1,285.74. The Nasdaq Composite Index <.IXIC> dropped 51.59 points, or 2.28 percent, to 2,212.02.Bear Stearns Chief Executive Alan Schwartz said on a conference call that concerns among customers and lenders got to the point where a lot of people wanted to get their cash out. Before the opening bell, the firm said its liquidity position had deteriorated significantly in the last 24 hours.Bear Stearns shares dropped 36 percent to $36.48, after falling as low as $28.42 earlier on the liquidity revelation.After the news on Bear Stearns, U.S. interest-rate futures showed the market fully expects that the Fed -- the U.S. central bank -- will cut short-term benchmark interest rates by 75 basis points, or three quarters of a percentage point, at its scheduled rate-setting meeting on Tuesday.This would bring the federal funds target rate down to 2.25 percent from the current 3 percent, following cuts by the Fed totaling 2.25 percentage points since mid-September.The credit woes overshadowed earlier tame inflation data. The U.S. Labor Department said cheaper transportation and energy helped keep consumer prices in check in February after a period of run-ups that had heightened concern over inflation.Exxon Mobil fell 1.6 percent to $85.67 as the price of oil edged down from a record price of $111 a barrel.(Editing by James Dalgleish)
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