Stocks Tumble After Bear Stearns Bailout

The plan by the New York Federal Reserve and JP Morgan Chase & Co. offers Bear Stearns relief from a sudden liquidity crunch that analysts surmised could have felled the bond house. But the company's position on the precipice of financial disaster left many 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.

"This is another chapter in a book rather than a one-act play," said Phil Orlando, chief equity market strategist at Federated Investors. He said the market is worried that further trouble in the credit markets will emerge and that the ramifications of the credit strains and a slowing economy could result in recession.

"Investors thought they are probably more than norm than the exception and maybe this is the tip of the iceberg," he said, referring to Bear Stearns. "Our sense is that this is sort of an amoeba here and this is sort of a broadly spreading situation."

In midafternoon trading, the Dow fell 307.57, or 2.53 percent, to 11,838.17, near its lows of the session.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 38.63, or 2.94 percent, to 1,276.85, and the Nasdaq composite index fell 70.19, or 3.10 percent, to 2,193.42.

The Russell 2000 index of smaller companies fell 22.62, or 3.33 percent, to 657.09.

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

Elisa Parisi, economic analyst at RGE Monitor.com, contends the bond market has recently shown more concern about the economy.