U.S. Stocks Trim Early Losses Fuled By Credit Crunch

NEW YORK (MarketWatch) -- U.S. stocks on Monday scaled back an early slide, with sentiment dented by the latest fallout from the credit crisis - the distressed sale of Bear Stearns Cos. Inc. and the Federal Reserve's extraordinary rate cut just two days ahead of Tuesday's slated meeting.

"Given the very intertwined dealings of financial instruments, investors began to wonder how many others might suffer the same fate in the weeks ahead," wrote Paul Nolte, director of investments at Hinsdale Associates, in an early note.

The dollar hit new lows against the euro and a basket of major currencies, sending oil to new heights of almost $112 a barrel, while investors seeking safe-haven bolstered gold to more than $1,030 an ounce.

After falling nearly 200 points at the start, the Dow Jones Industrial Average was more recently down 67.57 points to 11,883.52, with 22 of its 30 components posting early declines.

Blue-chip financials were among those hit, with Citigroup Inc. down nearly 5%, and American International Group Inc. off 4.1%.

The S&P 500 fell 16.40 points to 1,271.74, while the Nasdaq Composite declined 31.21 points to 2,181.28

Volume on the New York Stock Exchange neared 341 million, and declining stocks outpaced those advancing 5 to 1. On the Nasdaq, 195 million shares were exchanged, and decliners topped advancing issues 3 to 1.

Fed factor

Late Sunday, the Fed reduced the discount rate it charges on direct loans to banks to 3.25% from 3.50%, and offered to lend money to an unprecedented list of firms. .

The startling move came just after J.P. Morgan Chase said it would purchase battered investment bank Bear Stearns for a bargain-basement price of $2 a share. .

In early action, shares of J.P. Morgan gained 8.8%, while Bear Stearns plunged 87%.

Worry spread about other financial institutions, with shares of Lehman Brothers off 22% as Moody's Investors Service trimmed its outlook on the investment bank's debt rating. .

And, shares of Merrill Lynch Co. Inc. fell 9% and Goldman Sachs Group Inc. was down 6%.

On the New York Mercantile Exchange, crude for immediate delivery was down $3.44 at $106.77 a barrel, after rising to a high of $111.80 a barrel earlier on.

Elsewhere on the NYME, gold futures gained $8 to $1,007.50 an ounce, after reaching a high of $1,033.90 overnight.

The greenback remained under pressure, but remained off record lows hit earlier, with the dollar index at 71.33, down 0.4% but up from an overnight low of 70.698.

The market is now anticipating a 1% point cut in the federal funds rate at or before the central bank's policy meeting on Tuesday.

Pre-open economic data had manufacturing activity in the New York area falling for a second month straight in March, with the New York Federal Reserve Bank's index dropping to negative 22.2. .

Separately, the Commerce Department reported the U.S. current account deficit narrowed by 3% to $172.9 billion in the fourth quarter, or 4.9% of gross domestic product. .

Overseas, European bank shares fell sharply, with Swiss bank UBS AG among the worst performers. .

In Asia, several indexes tumbled 3% or more as worries about global credit markets spread. .

By Kate Gibson