Stocks Waver in Aftermath of Bear 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.

Moves by the Federal Reserve also seemed to give the market a floor Monday. Besides supporting the buyout, the Fed took the extraordinary step of lowering the rate it charges to loan directly to banks on Sunday night two days before its scheduled meeting Tuesday. The central bank lowered the discount rate by a quarter point to 3.25 percent.

And in another unusual move, the Fed said it set up a lending option for big investment banks to secure short-term loans.

The Fed's recent actions were seen as a pledge that the central bank would do everything in its power to keep the credit crisis from destroying the financial industry and the economy, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

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 is valuing 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.

"Our economy needs to substantially delever. You're going to have some very weak players pushed out of business," Battipaglia added, saying JPMorgan's buy of Bear Stearns and Bank of America Corp.'s acquisition of mortgage lender Countrywide are probably not the only rescues the industry will witness during this credit crisis.

The Dow recovered to trade down 15.88, or 0.13 percent, to 11,935.21.

Broader indexes also made up some lost ground. The Standard & Poor's 500 index fell 9.29, or 0.72 percent, to 1,278.85, while the Nasdaq composite index fell 22.85, or 1.03 percent, to 2,189.64.

JPMorgan is one of the Dow components, and rose $3.92, about 10 percent, to $40.46. The Fed essentially guaranteed JPMorgan that it would backstop the risk in taking over the 85-year-old Bear Stearns, which has 14,000 employees worldwide.