Stocks Gyrate After Bear Stearns Deal

A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it.

And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.

Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.

"This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again," said Robert Pavlik, portfolio manager at Oaktree Asset Management.

The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate the rate banks charge each other for overnight loans by at least a half-point on Tuesday, and perhaps even a full point.

Still, the market remained extremely volatile, and a steeper drop Monday was still quite possible. The sale of Bear Stearns and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million stirred fear among investors worldwide about other banks' exposure to the troubled credit markets.

"You're going to have some very weak players pushed out of business," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan's buy of Bear Stearns and Bank of America Corp.'s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.

The Dow fell 76.04, or 0.64 percent, to 11,875.05, after briefly venturing into positive territory.

Broader indexes also fell in choppy trading. The Standard & Poor's 500 index fell 17.39, or 1.35 percent, to 1,270.75, while the Nasdaq composite index fell 34.22, or 1.55 percent, to 2,178.27.