Bear Bailout Slams Stocks

News that the Federal Reserve and JP Morgan engineered emergency funding for Bear Stearns sent stocks plunging on Friday.

The rare maneuver — previously done in the 1960s and 1930s — spooked investors reeling from eight months of a worsening credit crisis and undid an early rally on upbeat inflation data.

At their lows, the major indexes were down by 3%, but still ended the day about 2% lower. Bear Stearns plunged 47% to a 10-year low.

After Friday’s news, Fed funds futures traders began pricing in a huge 100-basis point rate cut when the Fed meets on Tuesday.

Microsoft and Yahoo both fell more than 2% each depsite reports that the two met on Monday to discuss Microsoft’s merger proposal.

Micron, Nvidia and Broadcom led a weak chip sector with losses of 5.4% or more.

Dot Hill and Universal Display fell on their earnings reports, while Palm fell 7% ahead of its results due out March 20.

The Nasdaq fell 51 to 2212, the S&P lost 27 to 1288, and the Dow lost 194 to 11,951. Volume rose to 5.3 billion shares on the NYSE, and 2.57 billion on the Nasdaq. Decliners led by a 27-5 margin on the NYSE, and 22-6 on the Nasdaq. Downside volume was 92% on the NYSE, and 90% on the Nasdaq. New highs-new lows were 48-233 on the NYSE, and 43-278 on the Nasdaq.