By Justin GrantNEW YORK (Reuters) - Stocks fell on Monday after JPMorgan Chase agreed to buy Bear Stearns at a bargain price and the Federal Reserve provided emergency cash to Wall Street as the global credit crisis worsened.At one point the Standard & Poor's 500 index fell within four points of a bear market level, which would be 20 percent down from a closing high reached last October.Traders feared that the Fed's surprise Sunday move to cut its discount rate to 3.25 percent and expand lending to more big financial firms -- the first such action since the Great Depression -- won't be enough to curb the global meltdown in credit markets.JPMorgan said it would buy Bear Stearns for $236 million, or $2 per share -- one-fifteenth of the price at Friday's close. Shares of Bear, which until recently had ranked as the fifth-largest U.S. investment bank, reached a high of $172.61 last year. Bear's stock plummeted 85.8 percent to $4.26 on Monday afternoon.The overall financial sector tumbled, as Lehman Brothers sank 38 percent to $24.32 and Citigroup dropped 7 percent to $18.38. The Standard & Poor's financial index was down 3.2 percent.Interest rate futures have been pricing in a one-percentage point cut in benchmark U.S. interest rates by the Fed when it meets tomorrow, following 2.25 points of rate cuts since September to ease strains in credit markets.JPMorgan, a top gainer in both the blue-chip Dow average and the S&P 500, climbed 8 percent to $39.45, preventing an uglier day on Wall Street."It's going to take a couple of weeks for this all to get sorted out ... Investors, traders, everybody are to some extent a little afraid. So any time there's any hint of any problem, we are going to have these moves," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut.The Dow Jones industrial average shed 50.40 points, or 0.42 percent, to 11,900.69. The Standard & Poor's 500 Index dropped 18.63 points, or 1.45 percent, to 1,269.51. The Nasdaq Composite Index tumbled 42.86 points, or 1.94 percent, to 2,169.63.In the latest sign of dwindling confidence in the U.S. economy and financial system, the dollar sank to its weakest against the yen since 1995 and slumped against the euro and Swiss franc.The "fire sale" of Bear has put U.S. banks at risk as it will result in valuation adjustments that could result in a drop in stock prices of as much as 50 percent, Oppenheimer & Co analyst Meredith Whitney wrote.Elsewhere in the financial sector, mortgage insurer PMI Group Inc reported its biggest-ever quarterly loss, mainly due to losses on its investment in bond insurer FGIC Corp, and slashed its dividend by more than 70 percent.Shares of PMI dropped 9.8 percent to $5.13 after hitting a lifetime low of $4.82 earlier in the session.Meanwhile, shares of MF Global, the world's largest broker of exchange-listed futures and options, sank 54 percent to $8.00 on fears that Bear Stearns' demise could spread to other financial institutions, analysts said.The New York Federal Reserve Bank reported an unexpectedly steep drop in its manufacturing survey and a rise in prices paid. It was the worst reading of business conditions in the state of New York since the index was launched in July 2001.(Editing by James Dalgleish)
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