NEW YORK, US - GLOBAL stocks slid hard on Monday after a fire sale of troubled Bear Stearns stunned investors already worried about a worldwide credit crisis, although Wall Street pared losses on bottom-fishing and hopes the Federal Reserve can save the day.

Demand for US assets fell after it was announced on Sunday that JP Morgan Chase & Co agreed to pay just US$2 (S$2.75) a share to buy Bear Stearns, a fraction of the US$70 a share Bear commanded on stock markets at the beginning of last week. The swift turnabout caused sharp declines in a range of financial companies. most notably Lehman Brothers.

The dollar tumbled to a 12-1/2 year low against the Japanese yen and record lows against the euro and the Swiss franc as emergency measures by the Federal Reserve over the weekend failed to ease worries about the US banking sector.

The benchmark 10-year US Treasury note was up 36/32, with the yield at 3.3357 per cent. The 2-year US Treasury note was up 7/32, with the yield at 1.3687 per cent. The 30-year US Treasury bond was up 44/32, with the yield at 4.2946 per cent.

While credit concerns remained high because of losses triggered by defaults in the US subprime mortgage market, US shares pared steep declines, with the Dow posting a solid gain on the belief the Federal Reserve will ride to the rescue.

'Investment banks are getting their heads handed to them, but at the end of the day the Federal Reserve is stepping up every time and creating a process by which the markets will be allowed to recover,' said Mr Michael Williams, chief investment strategist at Tocqueville Asset Management in New York. 'Value investors are taking advantage of the people that are panicking,' he said.

After an initial sell-off in a see-saw session for the Dow, the benchmark gauge closed higher because it contains some of the largest-cap US stocks whose big exposure abroad will boost earnings due to the dollar's slide.

'The Dow's creating a false impression of market strength here,' said Mr Marc Pado, US market strategist at Cantor Fitzgerald & Co. 'But the Dow stocks - large-cap blue-chip multinationals - are benefiting from a falling dollar. It's not a market recovery per se.'

Much depends on the Fed's action on Tuesday at its scheduled policy meeting, he said. 'There's so much speculation. People are all over the map in terms of a rate cut.'

Slide of equity markets across globe

The slide of equity markets across the globe was deep and hit financial shares particularly hard. Of the 3,230 issues that traded on the New York Stock Exchange, almost one out of every four stocks touched 52-week lows. On Europe's top stock index, more than one out of four shares hit 52-week lows.

In stocks, benchmark indexes were mixed. The Dow Jones industrial average was up 21.16 points, or 0.18 per cent, at 11,972.25. The Standard & Poor's 500 Index was down 11.54 points, or 0.90 per cent, at 1,276.60. The Nasdaq Composite Index was down 35.48 points, or 1.60 per cent, at 2,177.01.

JPMorgan Chase & Co, a top gainer in both the blue-chip Dow average and the S&P 500, a key index among institutional investors, climbed 10.32 per cent to US$40.31, lifted by the low price it is paying for Bear Stearns and preventing an uglier day on Wall Street.

But most investment banking shares got clobbered. Lehman Brothers fell 19.1 per cent to US$31.75 on fears it was vulnerable to the same credit-related forces that took Bear down so quickly. Lehman's stock hit a session low at US$20.55, its lowest since June 2000, earlier in the day.

The market has 'been pretty much dominated by one thing and one thing only, and that's Bear Stearns and ... who we think may be next,' said Mr Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

On Monday, Bear's stock plummeted 84.4 per cent to close at US$4.81. It topped the list of the biggest percentage losers on the New York Stock Exchange. The 'fire sale' of Bear has put US banks at risk as it will lead to valuation adjustments that could result in a drop in stock prices of as much as 50 per cent, Oppenheimer & Co analyst Meredith Whitney wrote.

Driving investor jitters is widespread fear of counterparty risk. While many believe the Fed will be able to avert a full-blown financial meltdown, others question how much the Fed can help ease financial strains.

The Fed is expected to cut key interest rates again on Tuesday as it moves to plant the seeds of recovery and spur flagging US economic growth.

Interest rate futures have been pricing in a 1 percentage point cut to 2.25 per cent in benchmark US interest rates when the Fed meets on Tuesday. The Fed has cut rates 2.25 percentage points since September to ease strains in credit markets.

Yields on US Treasury bills fell sharply as investors piled into cash and cash-equivalent instruments. US 3-month T-bills fell below 1 per cent to 0.63 per cent, a level not seen in 50 years, while 1-month yields slid to possibly their lowest level ever at 0.53 per cent.

European stocks

European stocks sank more than 4 per cent to close at a 2-1/2 year low amid a sharp sell-off in banking shares. The day's biggest decliner was outside the financial sector, as German engineering group Siemens plummeted 17.1 per cent after project delays and cancelled orders prompted it to issue a profit warning.

The FTSEurofirst 300 index of top European shares ended 4.4 per cent lower at 1,199.80 points, its biggest one-day percentage drop since Jan 21.

The benchmark index has lost about 20 per cent since the start of the year, on track to record its worst quarterly performance since the third quarter of 2002.

Concerns about stock valuations in the troubled banking sector and fears that the credit crisis is far from over drove Europe stock markets.

'There is no doubt that the Bear Stearns scenario could happen in Europe,' said Mr Marie-Pierre Peillon, head of equity and credit research at Groupama Asset Management in Paris.

Swiss bank UBS tumbled 14 per cent, while Royal Bank of Scotland shed 8.7 per cent and Barclays dropped 9.4 per cent.

Falling dollar

The dollar slid as much as 3 per cent to below 96 yen, its lowest level since 1995 and bringing year-to-date losses to more than 13 per cent.

'The US financial sector is the main source of concern,' said Mr Matthew Strauss, a currency strategist at RBC Capital in Toronto. 'The dollar is clearly oversold against the euro and the yen, but the fear is that there might be other banks in trouble and that's adding pressure.'

The dollar fell as low as 95.77 yen according to Reuters data, and set a historic trough at 0.9637 Swiss francs after breaking below parity last week.

Oil fell more than 4 per cent as speculators sold futures to raise cash and cut their exposure to commodities amid a broader decline in world financial markets.

In energy and commodities prices, US light sweet crude oil fell US$4.33, or 3.93 per cent, to Us$105.88 per barrel, and spot gold prices rose US$6.80, or 0.68 per cent, to US$999.60. -- REUTERS