NEW YORK - Wall Street plunged anew Friday after a near meltdown at Bear Stearns Cos. handed investors the unwelcome confirmation that the credit market's troubles are far from over. Word that the investment bank needed rescuing touched off a wave of selling that left each of the major indexes down more than 1.5 percent on the day; the Dow Jones industrial average fell nearly 200 points.
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The plan by the New York Federal Reserve and JPMorgan Chase & Co. offers Bear Stearns relief from a sudden liquidity crunch that analysts surmised could have felled the investment bank. 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 the 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."
The Dow fell 194.65, or 1.60 percent, to 11,951.09. The Dow had been down as much as 313 points.
Broader stock indicators also declined but pulled off their lows. The Standard & Poor's 500 index fell 27.34, or 2.08 percent, to 1,288.14, and the Nasdaq composite index fell 51.12, or 2.26 percent, to 2,212.49.
For the week, the major indexes were mixed, with the Dow showing a modest gain, the Standard & Poor's 500 index slipping and the Nasdaq composite index finishing exactly where it began.
The Russell 2000 index of smaller companies fell 16.81, or 2.47 percent, to 662.90.
Bond prices jumped as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.44 percent in late trading from 3.53 percent 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 JPMorgan and Bear Stearns and that it is ready to provide resources to stave off further credit troubles. Fed Chairman Ben Bernanke also said Friday he would do what was possible to aid struggling homeowners.
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 14.2 percent.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to 5.18 billion shares compared with 4.94 billion shares traded Thursday.
"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."
Friday's 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.
Bear Stearns' woes rekindled investors' nervousness about the troubles in the financial sector. The company's shares skidded $27, or 47 percent, to $30, while JPMorgan fell $1.57, or 4.1 percent, to $36.54.
Other financial names declined as well. Lehman Brothers Holdings Inc. fell $6.73, or 15 percent, to $39.26 and Merrill Lynch & Co. slid $2.75, or 5.9 percent, to $43.51.
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, fell 12 cents to $110.21 per barrel on the New York Mercantile Exchange. Oil came close to its record of $111 set Thursday.
The market's fall Friday caps a big week for the markets. On Monday, stocks continued a sell-off from last week, falling more than 1 percent 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.
On top of Friday's concerns, Wall Street remains anxious for Tuesday's Fed meeting at which the central bank is still expected to lower interest rates. While Wall Street would welcome cheaper access to cash to help consumers and businesses, the freer flow of money would likely fan inflation concerns and could further weaken the dollar.
Overseas, Japan's Nikkei stock average finished down 1.54 percent. Britain's FTSE 100 closed down 1.07 percent, Germany's DAX index fell 0.75 percent, and France's CAC-40 lost 0.82 percent.
The Dow Jones industrial average ended the week up 57.40, 0.48 percent, at 11,951.09. The Standard & Poor's 500 index finished down 5.23, or 0.40 percent, at 1,288.14. The Nasdaq composite index ended the week unchanged at 2,212.49.
The Russell 2000 index finished the week up 2.79, or 0.42 percent, at 662.90.
The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended Friday at 12,992.93, down 59.24 points, or 0.45 percent, for the week. A year ago, the index was at 14,046.10.
