(Add midday market data)
By Herbert Lash
NEW YORK, March 14 (Reuters) - An emergency funding plan
for cash-strapped brokerage Bear Stearns <BSC.N> on tripped up
global equity markets on Friday and boosted bonds already
jittery over the impact of a widening credit crunch.
The stock of Bear Sterns, one of Wall Street's biggest
firms, lost nearly half its value and dragged other financial
stocks lower with it. Trading overall was volatile as investors
tried to absorb the stunning news of an unusual investment bank
rescue involving the Federal Reserve.
"People are starting to talk about whether this (Bear
Stearns) is a signal of a systematic problem in the U.S.
banking sector, and that's why we're seeing selling of dollars
across the board," said Greg Salvaggio, a currency trader at
Tempus Consulting in Washington.
Unsettled investors piled into the relative safety of U.S.
Treasuries as equity markets turned sharply lower. Bond yields
dropped sharply as some investors speculated the Fed will now
cut interest rates more sharply when policy-makers meet next
week.
The dollar fell to a fresh 12-1/2-year low against the yen
and another record low against the euro amid persistent fears
the U.S. economy is in for a long recession and its interest
rate differential with Europe will widen.
U.S. rate futures now point to a growing chance of a 1
percentage point cut at Tuesday's Fed meeting.
"This tells you we're not over the worst yet, and there are
still some players out there who are vulnerable," said Stephen
Dowds, head of international equities at Northern Trust in
London.
The Dow Jones industrial average <> was down 1.71
percent at 11,938.22, the Standard & Poor's 500 Index <.SPX>
was off 2.11 percent at 1,287.72 and the Nasdaq <> was
down 2.26 percent at 2,212.38 in early afternoon trading.
The initial announcement that JPMorgan Chase would provide
financing to Bear Stearns lifted European shares and U.S. index
futures, on the view that a white knight had stepped up.
But traders soon focused on additional statements that the
firm's cash position had deteriorated and the Federal Reserve
Bank of New York also was part of the emergency funding plan.
The plunge in Bear Stearns shares roiled other financial
stocks. Lehman Brothers Holdings Inc <LEH.N> fell 10 percent,
Citigroup lost 4 percent and Morgan Stanley <MS.N> 3 percent.
The fifth-largest U.S. investment bank has long been
considered one of the institutions hardest hit by a credit
crisis that has hammered financial markets for months, a
suspicion that appeared validated by the day's developments.
Bear Stearns said its cash position had deteriorated
significantly over the past 24 hours. It said the funding was
arranged to restore investor confidence, strengthen the bank's
liquidity and to allow it to continue normal operations. Its
shares were down 36 percent at $37, after falling as low as
$28.42.
The FTSEurofirst 300 index <> closed unofficially
down 0.95 percent at 1,256.37 points.
Amid the fresh wave of credit-driven jitters mining stocks
rose in Europe amid climing metal prices.
Rio Tinto <RIO.L> rose 2.6 percent, BHP Billiton <BLT.L>
3.4 percent and Xstrata <XTA.L> 1.4 percent.
The euro hit the new all-time record at $1.5688 <EUR=>
before easing to $1.5644, unchanged from late Thursday, and
fell below parity with the Swiss franc <CHF=> for the first
time.
Gold, which appeared to be benefiting from the turmoil
elsewhere, climbed to a new record peak above $1,000 for a
second day.
The credit concerns overshadowed earlier tame inflation
data that cheered investors and initially lifted European
shares and U.S. index futures.
The Labor Department said cheaper energy and transportation
helped keep overall consumer prices in check, a surprise after
a period of run-ups that had heightened concern over inflation.
Oil fell over a $1 as investors took profits after prices
hit a record $111 a barrel on Thursday, the seventh session in
a row it touched a record.
Crude is up nearly 8 percent already in March and about
14.5 percent this year.
"One dollar down is not very significant, it would need a
lot more weakness to shake out the speculators," said
Christopher Bellew at Bache Financial in London.
London Brent crude for April <LCOc1>, which also expires on
Friday, hit a new record of $108.02 before easing to $106.78.
Gold <XAU=>, seen as a safe-haven asset during financial
and political troubles, surged as high as $1,007.10 an ounce.
It was quoted at $999.60/1,000.40 at 1611 GMT, compared
with $991.00/991.80 late in New York on Thursday.
The metal has gained more than 20 percent this year on top
of a 32 percent gain in 2007.
Earlier, Japan's benchmark Nikkei <> average closed at
a more than 2-1/2 year low. It closed down 1.54 percent at
12,241.60. The broader TOPIX <> closed down by 1.9 percent
at 1,193.23.
(Reporting by Herbert Lash. Editing by Richard Satran)
