March 17 (Bloomberg) -- Stocks in the U.S., Europe and Asia fell after the Federal Reserve unexpectedly cut its discount interest rate and JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for about 90 percent less than its value last week.
The Standard & Poor's 500 Index slipped within 1.4 percentage points of a so-called bear market, while JPMorgan's biggest advance since January and a rally in health-care shares limited losses. Bear Stearns, Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. led financial shares to an almost five- year low on concern that the Fed will be unable to prevent credit-market losses from spreading.
The S&P 500 sank 14.96, or 1.2 percent, to 1,273.18 at 11:34 a.m. in New York. The Dow average slipped 51.78, or 0.4 percent, to 11,899.31. The Nasdaq Composite Index decreased 31.48, or 1.4 percent, to 2,181.01. Four stocks fell for every two that rose on the New York Stock Exchange. Europe's benchmark index slid to the lowest since November 2005 and Asian shares slumped for a third day.
``Is Bear Stearns the weakest link in the chain, and now that it's broken everyone else goes with it?'' said Daniel Bandi, who manages about $2.5 billion as chief investment officer of Integrity Asset Management LLC in Independence, Ohio. ``You think that would breed a little fear in the market.''
Nine of 10 industry groups in the S&P 500 dropped today as the benchmark for U.S. equities extended its decline from an Oct. 9 record to 18.7 percent. Energy shares lost 2.1 percent as a group today after oil fell more than $1 a barrel on concern the economy has slipped into a recession.
The Fed Reserve cut rates on direct loans to commercial banks by 25 basis points to 3.25 percent yesterday, aiming to restore confidence in financial markets hurt by more than $195 billion in asset writedowns and credit losses worldwide.
$2 a Share
Bear Stearns plunged $25.79, or 86 percent, to $4.21 after JPMorgan agreed to buy the bank for $240 million, or about $2 a share. The Fed is providing financial backing to JPMorgan for the deal. JPMorgan gained $4.09, or 11 percent, to $40.63.
The New York Fed agreed on March 14 to provide Bear Stearns financing through JPMorgan for up to 28 days. After denying for three days that access to capital was at risk, Bear Stearns said then that its cash position had ``significantly deteriorated'' amid what it called ``market chatter'' that it was facing a cash shortage.
Lehman, the fourth-largest U.S. securities firm, dropped $5.60 to $33.66.
Goldman Sachs, the world's largest securities firm, dropped $4.53, or 2.9 percent, to $152.33. The Sunday Telegraph said the brokerage will announce asset writedowns of about $3 billion this week, without citing anyone. The investment bank may report a decline in first-quarter earnings of about 50 percent, the newspaper said.
`20-Year Lows'
UBS AG downgraded shares of Goldman and Lehman to ``neutral'' from ``buy,'' saying the liquidity squeeze will get worse before it gets better.
``Valuation will likely test 20-year lows rather than 10- year lows,'' analysts including Glenn Schorr and Mike Carrier wrote in a report today.
Shares of banks may fall by half, Oppenheimer & Co.'s Meredith Whitney said. The analyst, who correctly predicted Citigroup Inc. would cut its dividend, wrote in a report that financial shares will tumble as investors focus on ``tangible book value,'' resulting in lower valuations.
Goldman, Morgan Stanley and Lehman may post further write- offs when they report first-quarter results this week, the Financial Times reported. U.S. investment firms and commercial banks are expected to announce more than $9 billion in additional losses in the first half, the newspaper said, citing Deutsche Bank AG analysts.
Financials Drop
Morgan Stanley retreated $2.55, or 6.5 percent, to $37. Merrill Lynch & Co., the third-largest securities firm, dropped $1.59, or 3.7 percent, to $41.92. Washington Mutual Inc., the biggest U.S. savings and loan, fell $1.02, or 10 percent, to $9.57. Citigroup Inc., the biggest U.S. bank, declined 65 cents, or 3.3 percent, to $19.13.
Health-care shares in the S&P 500 gained 0.2 percent, led by Merck & Co. The company's scientists used a new method to find a group of genes that act together in networks of people to spur obesity, researchers reported in the journal Nature. Merck advanced 33 cents to $41.30. Johnson & Johnson rose 53 cents to $63.18.
Europe's Dow Jones Stoxx 600 Index sank 3 percent. The MSCI Asia Pacific Index tumbled 2.3 percent. Hong Kong's Hang Seng Index tumbled 5.2 percent to the lowest since August.
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