(Adds pricing on Treasuries)
By Herbert Lash
NEW YORK, March 17 (Reuters) - Global stocks slid hard on
Monday after a fire sale of troubled Bear Stearns <BSC.N>
stunned investors already worried about a worldwide credit
crisis, although Wall Street pared losses on bottom-fishing and
hopes the Federal Reserve can save the day.
Demand for U.S. assets fell after it was announced on
Sunday that JP Morgan Chase & Co agreed to pay just $2 a share
to buy Bear Stearns, a fraction of the $70 a share Bear
commanded on stock markets at the beginning of last week. The
swift turnabout caused sharp declines in a range of financial
companies. most notably Lehman Brothers <LEH.N>.
The dollar tumbled to a 12-1/2 year low against the
Japanese yen and record lows against the euro and the Swiss
franc as emergency measures by the Federal Reserve over the
weekend failed to ease worries about the U.S. banking sector.
Financial fears stoked a trans-Atlantic scramble for
government debt as short-term inter-bank lending rates in
Europe and the United States jumped while the cost of insuring
the debt of U.S. banks against default rose.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
36/32, with the yield at 3.3357 percent. The 2-year U.S.
Treasury note <US2YT=RR> was up 7/32, with the yield at 1.3687
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
44/32, with the yield at 4.2946 percent.
While credit concerns remained high because of losses
triggered by defaults in the U.S. subprime mortgage market,
U.S. shares pared steep declines, with the Dow posting a solid
gain on the belief the Federal Reserve will ride to the
rescue.
"Investment banks are getting their heads handed to them,
but at the end of the day the Federal Reserve is stepping up
every time and creating a process by which the markets will be
allowed to recover," said Michael Williams, chief investment
strategist at Tocqueville Asset Management in New York.
"Value investors are taking advantage of the people that
are panicking," he said.
After an initial sell-off in a see-saw session for the Dow,
the benchmark gauge closed higher because it contains some of
the largest-cap U.S. stocks whose big exposure abroad will
boost earnings due to the dollar's slide.
"The Dow's creating a false impression of market strength
here," said Marc Pado, U.S. market strategist at Cantor
Fitzgerald & Co. "But the Dow stocks -- large-cap blue-chip
multinationals -- are benefiting from a falling dollar. It's
not a market recovery per se."
Much depends on the Fed's action on Tuesday at its
scheduled policy meeting, he said.
"There's so much speculation. People are all over the map
in terms of a rate cut."
The slide of equity markets across the globe was deep and
hit financial shares particularly hard. Of the 3,230 issues
that traded on the New York Stock Exchange, almost one out of
every four stocks touched 52-week lows. On Europe's top stock
index, more than one out of four shares hit 52-week lows.
In stocks, benchmark indexes were mixed. The Dow Jones
industrial average <> was up 21.16 points, or 0.18 percent,
at 11,972.25. The Standard & Poor's 500 Index <.SPX> was down
11.54 points, or 0.90 percent, at 1,276.60. The Nasdaq
Composite Index <> was down 35.48 points, or 1.60
percent, at 2,177.01.
JPMorgan Chase & Co <JPM.N>, a top gainer in both the
blue-chip Dow average and the S&P 500, a key index among
institutional investors, climbed 10.32 percent to $40.31,
lifted by the low price it is paying for Bear Stearns and
preventing an uglier day on Wall Street.
Driving investor jitters is widespread fear of counterparty
risk. While many believe the Fed will be able to avert a
full-blown financial meltdown, others question how much the Fed
can help ease financial strains.
The Fed is expected to cut key interest rates again on
Tuesday as it moves to plant the seeds of recovery and spur
flagging U.S. economic growth.
Interest rate futures have been pricing in a 1 percentage
point cut to 2.25 percent in benchmark U.S. interest rates when
the Fed meets on Tuesday. The Fed has cut rates 2.25 percentage
points since September to ease strains in credit markets.
Yields on U.S. Treasury bills fell sharply as investors
piled into cash and cash-equivalent instruments. U.S. 3-month
T-bills <US3MT=RR> fell below 1 percent to 0.63 percent, a
level not seen in 50 years, while 1-month yields <US1MT=RR>
slid to possibly their lowest level ever at 0.53 percent.
European stocks sank more than 4 percent to close at a
2-1/2 year low amid a sharp sell-off in banking shares.
The day's biggest decliner was outside the financial
sector, as German engineering group Siemens <SIEGn.DE>
plummeted 17.1 percent after project delays and canceled orders
prompted it to issue a profit warning.
The FTSEurofirst 300 <> index of top European shares
ended 4.4 percent lower at 1,199.80 points, its biggest one-day
percentage drop since Jan. 21.
The benchmark index has lost about 20 percent since the
start of the year, on track to record its worst quarterly
performance since the third quarter of 2002.
Concerns about stock valuations in the troubled banking
sector and fears that the credit crisis is far from over drove
Europe stock markets.
"There is no doubt that the Bear Stearns scenario could
happen in Europe," said Marie-Pierre Peillon, head of equity
and credit research at Groupama Asset Management in Paris.
Swiss bank UBS <UBSN.VX> tumbled 14 percent, while Royal
Bank of Scotland <RBS.L> shed 8.7 percent and Barclays <BARC.L>
dropped 9.4 percent.
The dollar slid as much as 3 percent to below 96 yen, its
lowest level since 1995 and bringing year-to-date losses to
more than 13 percent.
"The U.S. financial sector is the main source of concern,"
said Matthew Strauss, a currency strategist at RBC Capital in
Toronto. "The dollar is clearly oversold against the euro and
the yen, but the fear is that there might be other banks in
trouble and that's adding pressure."
The dollar fell as low as 95.77 yen according to Reuters
data <JPY=>, and set a historic trough at 0.9637 Swiss francs
<CHF=> after breaking below parity last week.
Oil fell more than 4 percent as speculators sold futures to
raise cash and cut their exposure to commodities amid a broader
decline in world financial markets.
In energy and commodities prices, U.S. light sweet crude
oil <CLc1> fell $4.33, or 3.93 percent, to $105.88 per barrel,
and spot gold prices <XAU=> rose $6.80, or 0.68 percent, to
$999.60.
(Reporting by Herbert Lash. Editing by Richard Satran)
