Stocks fall after credit fears worsen

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NEW YORK -- Stocks fell Friday but pulled off their lows as investors digested a plan to alleviate a liquidity crisis at Bear Stearns Cos. that has touched off concerns about the severity of credit troubles. Each of the major indexes lost more than 1%; the Dow Jones industrial average gave up about 150 points.

Investors at various times appeared both comforted by and unnerved by a plan by the New York Federal Reserve and JPMorgan Chase & Co. to provide secured funding to Bear Stearns. The move offers Bear Stearns relief from a sudden liquidity crunch that analysts quickly surmised could have felled the bond house. At the same time, Bear's position on the precipice of financial disaster seemed to leave investors shaken and spoiled some hopes that troubles in the moribund credit market are on the mend.

Stocks showed moderate increases 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 about the severity of troubles at Bear Stearns.

"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 midday trading, the Dow fell 146.70, or 1.21%, to 11,999.04 after having fallen as much as 300 points.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 21.52, or 1.64%, to 1,293.96, and the Nasdaq composite index fell 39.53, or 1.75%, to 2,224.08.

The Russell 2000 index of smaller companies fell 14.73, or 2.17%, to 664.98.

Bond prices jumped as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.43% from 3.54% late Thursday.

Comments from the Fed might have helped corral some of investors' nervousness Friday. The central bank said it voted unanimously to sign off on the arrangement between JP Morgan and Bear Stearns and that it is ready to provide further resources to stave off further credit troubles.

Still, investors remained nervous. The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped 11.2%.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 684.1 million shares.

Friday's stock market pullback comes a day after an anxious stock market rebounded from an early plunge following a Standard & Poor's prediction that 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.

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.

Bear Stearns shares fell sharply after an initial run-up on the news. Bear skidded $24.10, or 42%, to $32.90, while other financial names such as Lehman Brothers Holdings Inc. fell $3.89, or 8.5%, to $42.10.

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 fell 51 cents to $109.82 per barrel on the New York Mercantile Exchange.

The market's rise then fall Friday caps a big week for the markets. On Monday, stocks continued a sell-off from last week, falling more than 1% as oil again moved into record territory. Then, on Tuesday, stocks surged after the Fed said it would put up $200 billion to loosen tight credit markets. The Dow surged nearly 417 points, its biggest one-day percentage gain in five years. Stocks posted more modest losses and gains Wednesday and Thursday as investors speculated over how much help the Fed's plan would ultimately provide.

Wall Street remains anxious for Tuesday's Fed meeting at which the central bank is still expected to lower interest rates by 50 basis points. While Wall Street would welcome cheaper access to cash to help consumers and businesses more easily justify spending, the cheaper access to cash will likely exacerbate inflationary concerns and could further weaken the dollar.

Overseas, Japan's Nikkei stock average fell 1.54%. In afternoon trading, Britain's FTSE 100 fell 1.05%, Germany's DAX index fell 0.70%, and France's CAC-40 fell 1.12%.
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