U.S. Stocks Briefly Collapse On Bear Stearns Bailout News
NEW YORK (MarketWatch) - News that Bear Stearns Cos. was set to receive a financial rescue sent U.S. stocks into a freefall in early Friday trade, plunging the three major indexes more than 2% down before the market stabilized and moved off its lows.
Bear Stearns revealed before the market opened that its liquidity had "significantly deteriorated" during the past 24 hours. The brokerage firm had worked with J.P. Morgan Chase and the Federal Reserve Bank of New York to secure funding, Bear Stearns and J.P. Morgan said in separate statements. .
"People are concerned about Bear Stearns and financials and not trading on anything else," said Art Hogan, chief market strategist at Jefferies.
The news sent the Dow Jones Industrial Average plummeting over 300 points before moving back up. By late morning, it was down 190.91 points, or 1.6%, to 11,954.83, with 29 of its 30 components trading lower and with financial stocks leading the blue-chip declines.
"People realized that Bear Stearns just came out the other day saying everything was fine," said Paul Nolte, director of investments at Hinsdale Associates. "So, two days later, why would they need this funding from the Fed and JP Morgan? If it's like that for them, what is it like for Merrill Lynch or for Thornburg Mortgage?"
By late morning, shares of Bear Stearns had tumbled 43.9%.
Among other financials, Citigroup Inc. was down 4.9%; J.P. Morgan was off 2.2% and American Express Co. declined 3.7%.
Boeing Co. proved the sole Dow component chalking up gains, up 2.6% after its upgrade to overweight from equal weight at Morgan Stanley.
The S&P 500 dropped 25.43 points, or 1.9%, to 1,290.05, while the Nasdaq Composite fell 47.47 points, or 2%, to 2,216.14.
Volume on the New York Stock Exchange hit 635 million, with declining stocks outpacing those advancing 5 to 1. On the Nasdaq, 463 million shares were exchanged, and decliners outran advancers more than 3 to 1.
Consumers not so confident
The stock market had initially opening slightly higher Friday on a Labor Department report showing the consumer price index held flat in February, defying expectations for a 0.2% increase. .
However, the University of Michigan/Reuters consumer confidence index dropped to 70.5 in March, a 16-year low, from 70.8 in February, according to media reports.
On Thursday, U.S. stocks had recovered from opening losses, and the Dow industrials ended up 35 points, the Nasdaq Composite advanced 19 points and the S&P 500 gained 6 points.
Crude-oil futures dropped to trade back below $110 a barrel, as the dollar rebounded against major currencies following the release of the better-than-expected U.S. inflation data.
Crude oil for April delivery fell 58 cents to $109.75 a barrel on the New York Mercantile Exchange. .
Elsewhere on the New York Mercantile Exchange, gold futures hit a record high of $1,009.00 an ounce, with the contract for April delivery more recently rising $10.80 to $1,004.60 an ounce on the New York Mercantile Exchange. .
Federal Reserve Chairman Ben Bernanke is scheduled to give a speech at 12:30 p.m. Eastern on "sustainable homeownership."
Shares of both Microsoft Corp. and its reluctant target, Yahoo Inc., were down -- Microsoft off 0.9% and Yahoo declining 2.1% -- on reports the two met earlier this week without reaching agreement on Microsoft's merger proposal. .
In Europe, stocks took a quick turn for the worse as word that Bear Stearns had gone to the Fed and J.P. Morgan for liquidity, fanning concerns for rivals overseas. .
By Kate Gibson