(Adds opening of U.S. markets, byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 17 (Reuters) - Wall Street stocks moved
lower on Monday after a fire sale of troubled Bear Stearns
arranged by the U.S. Federal Reserve Bank slammed Europe and
Asia with gaping losses but led to a milder reaction in the
United States.
Global markets were driven by fear that the Fed's move to
back JPMorgan <JPM.N> in taking over Bear Stearns reflected a
widening of worldwide credit crisis that could engulf other
banks and market participants.
In New York, however, equities were lifted by several rally
attempts in morning trading and overall loses were half the
level of other global markets.
"Much to everyone's shock," the Dow was not completely
mired in negative territory, said Peter Kenny, managing
director at Knight Equity Markets in Jersey City, New Jersey.
The need for a Fed bailout, however, kept trading cautious
and jittery.
"We're in a position now where really the Fed is the only
entity out there that can really help, to get the market back
on track," said Kenny.
The dollar tumbled and investors piled into the safety of
government debt following steep sell-offs of equity markets in
Europe and Asia. U.S. stocks opened sharply lower but pared
many losses and the Dow went in and out of positive territory.
Efforts by the U.S. Federal Reserve to restore battered
investor confidence may have taken the edge off a grim mood in
global markets. In an emergency move on Sunday the Fed cut a
key lending rate and announced new measures to stabilize credit
markets rocked by rising defaults on U.S. mortgage debt.
Reacting to signs of continuing instability. government
debt prices surged in a flight to safety. U.S. And European
short-term inter-bank lending rates jumped, while spreads of
U.S. banks' credit default swaps widened, signaling growing
fears of counter-party risk in the banking system.
Bids for cash instruments were so sharp that the yield on
3-month U.S. Treasury bills fell below 1 percent to levels not
seen in 50 years.
Traders reported that money markets were near stand-still
with banks increasingly wary of lending to each other after
news that JPMorgan would buy Bear Stearns for just $2 a share.
Banking shares in the United States and Europe tumbled --
Lehman Brothers <LEH.N> was down 25 percent, UBS <UBSN.VX> fell
10 percent and Citigroup <C.N> shed 6.5 percent -- leading
benchmark stock indexes lower.
The market had a positive view on the move by JPMoran,
which rose 9.85 percent. Investors saw it as a rock-bottom
price of $236 million -- a tiny fraction of the fifth-largest
U.S. investment bank's market value a year ago.
U.S. stock indexes fell almost 2 percent shortly after
opening and European shares fell more than 4 percent, following
a sell-off in Asia, where Japan's leading indexes shed 3.7
percent.
A bounce in the Dow proved short-lived and the broader
market remained in the red amid investor concerns that the
global credit crisis may be spiraling out of control.
The Dow Jones industrial average <> dropped 114.39
points, or 0.96 percent, to 11,836.70. The Standard & Poor's
500 Index <.SPX> shed 23.44 points, or 1.82 percent, to
1,264.70. The Nasdaq Composite Index <> tumbled 44.78
points, or 2.02 percent, to 2,167.71.
The financial sector tumbled, as Lehman Brothers <LEH.N>
sank 23.9 to $29.86 and Citigroup dropped 7.3 percent to
$18.35. The Standard & Poor's financial index <.GSPF> was down
3.6 percent.
The dollar hit new lows against the euro and a basket of
six major currencies. Oil hit a new high of nearly $112 a
barrel on the weaker dollar.
And investors dived into safe haven assets, lifting gold to
more than $1,030 an ounce at one point and sending yields on
short-dated euro zone debt below 3 percent for the first time
in more than two years.
"The markets are in a complete state of panic and in such
situations there is no such thing as valuation or value in any
asset," said Michael Klawitter, FX strategist at Dresdner
Kleinwort in Frankfurt.
In a shock move late on Sunday, the Fed lowered the
discount rate it charges on direct loans to banks to 3.25
percent from 3.50 and implemented steps to provide cash to a
wider range of financial firms, using tools last used in the
Great Depression.
LIQUIDITY SQUEEZE
Investors are now nearly fully pricing in a 1 percentage
point cut in the main federal funds rate at or before the Fed's
policy meeting on Tuesday.
That would take U.S. rates down to just 2.0 percent.
There were also signs of continuing liquidity worries.
The Bank of England said it would offer 5 billion pounds
($9.85 billion) of three-day funds later on Monday in an
exceptional fine-tuning operation designed to bring overnight
interest rates down.
Market strategists said there was a deep distrust between
banks when it came to lending.
"It's quite illiquid this morning. If you want unsecured
cash you're really going to have to pay up for it. It's really
quite an intense situation," said David Keeble, head of rate
strategy at Calyon.
Concern swirled that problems were not contained to Bear
Stearns. Merrill Lynch <MER.N> fell 7.9 percent and Goldman
Sachs <GS.N> declined 6.2 percent.
STOCKS, DOLLAR DOWN SHARPLY
European shares tumbled. The FTSEurofirst 300 <>
index of top European shares was down 3.4 percent, having pared
losses from an earlier decline of 4.4 percent.
Earlier, Japanese stocks fell to about a 2-1/2 year closing
low, dragged down by exporters worried about a rising yen.
The Nikkei average <> fell 3.7 percent or 454.09
points to end at 11,787.51, its lowest finish since Aug. 8,
2005.
The broader TOPIX index <> shed 3.7 percent or 43.58
points to 1,149.65, the lowest close since June 2005.
The dollar plunged across the board.
It slid as much as 3 percent in early Monday trading as low
as 95.77 yen according to Reuters data <JPY=>, the lowest since
1995, and set fresh all-time lows at 0.9637 Swiss francs
<CHF=>.
It later recovered to 96.91 yen and 0.9834 Swiss franc.
The euro <EUR=> soared as high as a new record $1.5904
before dropping back to $1.57533.
A record low dollar and an emergency rate cut by the
Federal Reserve also fueled buying in gold, and traders
expected choppy business ahead of a rate-setting decision by
the U.S. central bank on Tuesday.
He active gold contract for April delivery <GCJ8> in New
York rose $12.70 to $1,012.20 an ounce after hitting a new
record of $1,033.90.
Oil dropped from a record high as a part of wider commodity
sell-off sparked by growing concern over the health of the
world's largest economy.
U.S. crude <CLc1> was trading at $106.87 by 1359 GMT, down
$3.34 from the previous close. Earlier, it hit a new record of
$111.80 and then fell to a session low of $105.11.
The gold contract for April delivery <GCJ8> in New York was
up $12.70 to $1,012.20 an ounce, after hitting a record
$1,033.90.
(Reporting by Herbert Lash. Editing by Richard Satran)
