Friday, March 14, 2008 10:35:44 AM
By TIM PARADIS
Stocks plunged early Friday as investors worried that a plan to ease a liquidity crisis at Bear Stearns Cos. indicates how severe credit troubles have become. Each of the major indexes lost more than 1 percent; the Dow Jones industrials fell about 140 points.
Investors were busy examining the plan from JPMorgan Chase & Co. and the New York Federal Reserve to provide secured funding to Bear Stearns for an initial period of 28 days. The move offers Bear Stearns relief from a sudden liquidity crunch.
Bear Stearns shares fell sharply, dragging down other financial companies. Bear skidded $24.50, or 43 percent, to $32.50.
Stocks showed moderate gains in the early going after a Labor Department report showed the Consumer Price Index remained flat for February. Wall Street has been expecting inflation would show an increase.
But the gains quickly disappeared after investors learned more about how close Bear Stearns appeared to have come to financial implosion.
"The Bear Stearns news reversed the early positive sentiment from the inflation data," said Peter Cardillo, chief market economist at Avalon Partners. "There had been nervousness about Bear Stearns for some time and now the market's concerns about the company have been proven true."
In midmorning trading, the Dow Jones industrial average fell 146.05, or 1.20 percent, to 11,999.69 after having fallen as much as 300 points.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 19.88, or 1.51 percent, to 1,295.60, and the Nasdaq composite index fell 29.60, or 1.31 percent, to 2,234.01.
Bond prices jumped as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.42 percent from 3.54 percent late Thursday.
Investors' nervousness was obvious Friday. The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped 9.56 percent.
Declining issues outnumbered advancers by nearly 5 to 1 on the New York Stock Exchange, where volume came to 419.6 million shares.
Friday's stock market pullback comes a day after an anxious stock market rebounded from an early plunge after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that have pummeled the stock and credit markets for months. The S&P projection had given investors some hope that the seemingly unrelenting losses from the mortgage and credit crisis could have been bottoming out.
But the Bear Stearns news rekindled investors' nervousness about the troubles in the financial sector and raised concerns over whether other banks might soon face similar liquidity stresses.
Stock market investors Friday were also eyeing the dwindling dollar and events in the soaring commodities market. Gold prices touched another fresh record Friday.
Light, sweet crude, which set a fresh record Thursday, recently rose 26 cents to $110.59 per barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies fell 9.19, or 1.35 percent, to 670.52.
Overseas, Japan's Nikkei stock average fell 1.54 percent. In afternoon trading, Britain's FTSE 100 fell 1.05 percent, Germany's DAX index fell 1.08 percent, and France's CAC-40 fell 0.96 percent.