Wall Street recovers to finish up 21 points

The Fed appears to be pledging to do everything in its power to keep the credit crisis from decimating the financial industry and the economy.

Wall Street ended a temperamental session widely mixed Monday after investors grappled with JPMorgan Chase & Co.'s government-backed buyout of the stricken investment bank Bear Stearns & Co. The Dow Jones industrials recovered from an initially drop of nearly 200 points to finish up about 21 points. The broader Standard & Poor's 500 and Nasdaq composite indexes ended lower, as investors bailed out of investment banks and small-cap stocks and fled instead to large companies apt to be reliable during a weak economy. "You move to the defensive names in times of market uncertainty - safer, consumer names," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. The 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 investors 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. The Fed appears to be pledging to do everything in its power to keep the credit crisis from decimating 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. But the market remained extremely volatile. The sale of Bear Stearns - at a minuscule $2.21 a share as of Monday's close, or a total of $260.5 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 rose 21.16, or 0.18 percent, at 11,972.25, after falling nearly 200 and rising more than 100. The Dow was supported in part by JPMorgan, by far the biggest gainer among the 30 component stocks. JPMorgan rose $3.77, or 10.3 percent, to $40.31. The Dow also got a lift as investors aimed for large-cap stocks such as AT&T Inc., up 76 cents at $35.79, Verizon, up 79 cents at $34.61, and pharmaceutical maker Johnson & Johnson, up $1.39 at $64.04. The Standard & Poor's 500 index fell 11.54, or 0.90 percent, to 1,276.60. The Nasdaq composite index, heavily populated by small and high-tech companies, fell 35.48, or 1.60 percent, to 2,177.01. In the UK the Bank of England said it will offer an extra 5 billion pounds - around $10.1 billion of reserves into the short-term money market on Monday because of conditions in the market, and the Bank of Japan and the Royal Bank of Australia also made more funds available. Britain's FTSE 100 closed down 3.9 percent to 5414.4, while France's CAC-40 Index dropped 3.5% to 4431.0. Germany's DAX Index plunged 4.2% to 6182.3. Financials were especially hard hit, with Switzerland's UBS down 13.9% on the day. The head of the International Monetary Fund says the world financial crisis is more serious and more global than a few weeks ago. Dominique Strauss-Kahn says the "economic environment is still worsening." "It's difficult to call where the bottom is," said Richard Hunter, a broker at Hargreaves Lansdown in London. "The banks getting hit are those perceived to have exposure to the US subprime market." News of the acquisition of Bear Stearns stunned investors just before markets opened in Tokyo and Seoul. Both fell sharply before paring some losses in afternoon trading. Japan's benchmark 225 index sank 3.7% to close at 11,787.51 points, its lowest in more than 21⁄2 years. Hong Kong's Hang Seng index fell 5.2% to finish at 21,084.61. Across the Asia-Pacific region, all major stock indexes were down, including markets in Australia, China, South Korea, Indonesia and the Philippines. In an extraordinarily rare weekend move, the Federal Reserve took bold action Sunday evening by cutting the discount rate, its lending rate to financial institutions, to 3.25% from 3.5%, effective immediately. The Fed also created another lending facility for big investment banks to secure short-term loans that would be available to big Wall Street firms on Monday. The Fed was also widely expected to again cut its headline interest rate, the fed funds rate, by as much as a full percentage point to 2 percent at a regular meeting set for Tuesday. In currency trading, the dollar plunged as low as 95.72 yen - its lowest since August 1995 - dragged down by a gloomy outlook for the American economy and prospects for lower interest rates. The euro rose to a record high $1.5903 before retreating. Japanese officials quickly called for calm in the currency markets, but did not announce any plans for intervention to shore up the greenback by buying up dollars. The weak dollar erodes profits at the country's key exporters. Oil prices plunged Monday, pulling back at least temporarily from record levels as investors feared that the financial crisis that forced the sale of Bear Stearns Cos. is a sign of deep economic trouble. Oil's steep decline - falling $4.53 to settle at $105.68 a barrel on the New York Mercantile Exchange - came hours after futures reached a new trading high of $111.80 on the Federal Reserve's move Sunday to lower a key interest rate by a quarter point. COMMODITIES Gold prices closed above $1,000 for the first time Monday, rising to a new record as uneasy investors flocked to the safe-haven metal following JPMorgan Chase & Co's. buyout of investment bank Bear Stearns Cos. Other commodities fell in a broad sell-off, with crude oil dropping from a record and agriculture futures also trading sharply lower. JPMorgan Chase & Co. said Sunday night it would buy Bear Stearns for $236.2 million - or $2 a share - in a deal worth a fraction of the investment bank's book value last week. The sale was approved by the Federal Reserve in a bid to avoid bankruptcy and restore confidence in distressed global financial markets, which are still reeling from last year's subprime mortgage meltdown. "It's definitely one of the bigger dominoes to fall," said Jon Nadler, analyst at Kitco Bullion Dealers Montreal. "Gold has benefited from this flight to quality but it's also coming into question in terms of being disconnected from the fundamentals." Gold for April delivery shot up to an all-time record of $1,033.90 an ounce on the New York Mercantile Exchange before easing back to settle at $1,002.60, still up $3.10. It was the first time gold close above $1,000 since breaching the milestone last week. Prices fluctuated between gains and losses in aftermarket trading. The metal also got a boost after the Fed on Sunday approved a cut in its emergency lending rate to financial institutions to 3.25 % from 3.5%. Gold has gained nearly 20% this year, although some analysts say the metal is overpriced and due for a correction. Whether it continues to push higher or pull back is "just a factor of how much bad news people still perceive as being in the pipeline," Nadler said. Gold is traditionally viewed as a safe-haven investment during times of economic turmoil, and often rises as the dollar falls since the metal is known for holding its value. A weaker greenback also makes dollar denominated commodities like precious metals cheaper for overseas buyers. The dollar continued its downward slide versus the euro, which bought a record-high of $1.5903 in Monday trading. Despite the dollar's fall, other precious metals traded lower Monday. Silver for May delivery lost 35.5 cents to settle at $20.300 an ounce on the Nymex after earlier surging to a 27-year high of $21.440. Nymex copper lost 14 cents to settle at $3.6850 a pound.