U.S. Stocks Dive Further On Bear Stearns Bailout News

NEW YORK (MarketWatch) -- U.S. stocks were hammered for a third day this week on Friday after Bear Stearns Cos. said it was on life support and in need of a bailout from the Federal Reserve and J.P. Morgan Chase, with shares of the investment bank plunging 55%.

"It's a continuation of the financial crisis that's been going on for the last six months," said John Derrick, director of research, U.S. Global Investors. .

Poised for a starting rise in the wake of tame inflation data, the major stock indexes quickly shed opening gains after Bear Stearns said its liquidity had "significantly deteriorated" during the past 24 hours.

The news sent the Dow Jones Industrial Average plummeting over 300 points before moving back up. By late afternoon, it was down 275.74 points, or 2.3%, to 11,870.00, with 29 of its 30 components posting losses.

By the afternoon, shares of Bear Stearns had tumbled 55%.

Among blue-chip financials, Citigroup Inc. was down 4.5%, J.P. Morgan was off 2.6% and American Express Co. declined 2.9%.

Boeing Co. proved the sole Dow component chalking up gains, up 1.9% after its upgrade to overweight from equal weight at Morgan Stanley.

The S&P 500 dropped 39.05 points, or 3%, to 1,276.43, while the Nasdaq Composite fell 70.21 points, or 3.1%, to 2,193.40.

Volume on the New York Stock Exchange hit 1.1 billion, and for every stock on the rise, nine were falling. On the Nasdaq, 865 million shares were exchanged, and decliners outran advancers more than 4 to 1.

Crude oil for April delivery fell 38 cents to $109.95 a barrel on the New York Mercantile Exchange. .

Elsewhere on the NYME, gold futures hit a record high of $1,009.00 an ounce, with the contract for April delivery rising $5.70 to close at $999.50 an ounce. .

The dollar trimmed losses but remained under pressure Friday after touching new lows against the euro and Swiss franc, with the dollar index recently at 71.72, down from 72.047 in London trade earlier on. .

Bearing down

Bear Stearns 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.

"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 J.P. Morgan? If it's like that for them, what is it like for Merrill Lynch or for Thornburg Mortgage?"

Consumers not so confident

The stock market had initially opened 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 was reported to have dropped to 70.5 in March, a 16-year low, from 70.8 in February.

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.

Shares of both Microsoft Corp. and its reluctant target, Yahoo Inc. , were down -- Microsoft off 2.5% and Yahoo declining 3.4% -- 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 on the Bear Stearns news, which fanned concerns for rivals overseas. .

By Kate Gibson