Bearishly good news: Stocks don’t fall as far as expected

Shares of financial companies were pummeled today, but the overall stock market finished well above its lows a day after the historic collapse of Bear Stearns Cos. and newly aggressive measures by the Federal Reserve to combat the credit crunch

Many investors had feared a repeat of 1987’s Black Monday, when after a rough Friday stock prices sank into a free fall as the new week dawned.

Instead, what they got today was practically a sigh of relief by comparison.

Broad stock indexes suffered declines that were far from catastrophic and the Dow Jones industrial average actually eked out a small gain.

There certainly was plenty of disheartening news. Leading shares of banks and brokerages down, Lehman Bros. Holdings lost a fifth of its market value on fears that the fixed-income specialist could face the type of credit squeeze that felled Bear Stearns.

After suffering a virtual run on the bank by skittish customers, once-vaunted Bear Stearns was forced to sell itself in fire-sale fashion to rival JPMorgan Chase & Co. for $236 million, or $2 a share, a fraction of its market value just a few days ago.

But there was also relief that the feared market chaos never materialized.

“I was getting up in the middle of the night and looking at [stock-market] headlines on my Blackberry, hoping that the world was holding it together,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. “Now I feel much more sanguine about the shape of our financial system.”

After sinking almost 200 points early in the day, the Dow finished up 21.16 points, or 0.2%, at 11,972.25.

The Standard & Poor’s 500 declined 11.54 points, or 0.9%, to 1,276.60. The Nasdaq composite index fell 35.48 points, or 1.6%, to 2,177.01.

In a surprise, commodity prices plunged, partly triggered by rumors that some speculators were forced to sell as their lenders called in loans. Near-term crude oil futures sank to $106.13 a barrel from $110.21 late Friday. Gold futures, however, finished above $1,000 an ounce as the dollar continued to sink.

Partly as a response to the sell-off in U.S. stocks Friday, after the woes at Bear Stearns first came to light, Asian markets sank early today. Japan’s Nikkei was down 3.7% and Hong Kong’s Hang Seng slid 5.2%.

Most European markets tumbled more than 3%, led by bank stocks. Britain’s Barclays Bank closed down 9.4%, while Switzerland-based UBS lost 14%.

The Dow got a boost from JPMorgan, whose shares surged $3.77, or 10%, to $40.31 as investors concluded the company was getting a bargain in Bear Stearns and was sufficiently protected by the Fed from any downside risk.

Bear Stearns shares plunged $25.19, or 84%, to $4.81. Because the closing price was still more than double the $2 a share the company accepted Sunday from JPMorgan, it appeared some investors doubted the deal would go through at that price.

Lehman Bros. fell as low as $20.25 then finished at $31.75, off $7.51, or 19%. Morgan Stanley fell 8%, while Merrill Lynch slid 5.4%.

The U.S. market is not out of the woods yet, experts said. The next few days could be crucial as major brokerage firms report quarterly earnings and investors wait to see whether any firms suffer runs on the bank as did Bear Stearns.

“There’s a great deal of fear - some of it justified - when you have a company whose stock a week ago traded around $70 and people decide it’s worth $2,” said Stanley Nabi, chief strategist at New York-based Silvercrest Asset Management. “People are now saying, ‘I’m holding this stock or that stock. How much is it really worth?’ ”

walter.hamilton@latimes.com