Credit Herald

Stock markets in the United States, Canada and around the world were roiled Monday by news that JPMorgan Chase, backed by the U.S. central bank, had to rescue troubled Bear Stearns on the weekend and investors struggled to gauge the impact.

Toronto's S&P/TSX composite index fell 300.69 points or about 2.3 per cent. But it could have been a lot worse as the market lost as much as 455 points earlier in the day, following the lead of overseas markets in Asia and Europe.

Canadian bank stocks were down sharply on worries about exposure to toxic securities linked to the collapsing American housing sector. Energy and metals stocks also fell on worries that a U.S. economic downturn would send commodity prices down.

Losers in the TSX financial sector included Royal Bank (TSX: RY), which fell $1.20 to $44.32 while CIBC (TSX: CM) gave back $2.96 to $56.94.

But Wall Street indexes fared much better.

In fact, the closely watched Dow Jones industrials gained 21 points for the day, recovering from an initial drop of nearly 200 points.

The broader Standard & Poor's 500 and Nasdaq composite indexes ended lower, but not as much as foreign markets. The Standard & Poor's 500 index fell 11.54, or 0.90 per cent, to 1,276.60. The Nasdaq composite index, heavily populated by small and high-tech companies, fell 35.48, or 1.60 per cent, to 2,177.01.

President George W. Bush, trying to calm turmoil in financial markets, said Monday that his administration is "on top of the situation" in dealing with the slumping economy.

"One thing is for certain, we're in challenging times," the president said after meeting with Treasury Secretary Henry Paulson and other senior economic advisers. "But another thing is for certain: We've taken strong, decisive action."

In an extraordinary move Sunday, the Federal Reserve cut the discount rate, its lending rate to financial institutions, to 3.25 per cent from 3.5 per cent, 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, which is the U.S. central bank, was also widely expected to again cut its headline interest rate, the fed funds rate, by as much as a full percentage point to two per cent at a regular meeting set for Tuesday.

Bush commended the Federal Reserve for its urgent actions over the weekend fast payday loan no faxing. He praised Paulson for working with the Fed and showing “the country and the world that the United States is on top of the situation."

Investors, however, were stunned by the fall of Bear Stearns one of the world's largest and most venerable investment banks. JPMorgan said Sunday it would buy Bear Stearns for US$236.2 million – $2 a share – about one per cent of what the investment bank was worth little more than two weeks ago.

The Bank of England on Monday offered an extra five billion pounds – around US$10.1 billion – of reserves for short-term money markets because of the dire conditions.

Overseas, Japan's Nikkei stock average fell 3.71 per cent, while Hong Kong's Hang Seng index fell 5.18 per cent. Britain's FTSE 100 fell 3.86 per cent, Germany's DAX index dropped 4.18 per cent, and France's CAC-40 lost 3.51 per cent.

"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

Across the Asia-Pacific region, all major stock indexes were down, including markets in Australia, China, South Korea, Indonesia and the Philippines. India's Sensex dropped 5.1 per cent in afternoon trading.

"We are worried" about what comes next, Shim Jae-youb, a strategist at Meritz Securities in Seoul, said of concerns that other banks may collapse.

Shim said investors were on guard ahead of the release of quarterly earnings reports from big U.S. investment banks this week, including Lehman Brothers Holdings Inc., Goldman Sachs Group Inc., and Morgan Stanley. Bear Stearns called off its report.

The U.S. dollar sank to a record low against the euro and hit a 12 1/2 year low against the Japanese yen, while gold prices rose to another record high.

The Canadian dollar, which has been buoyed by strong demand for commodities like metals and crude oil, fell 1.33 cents to 100.07 cents US as oil prices slid.

Crude oil plunged from record levels by $4.53 to settle at US$105.68 per barrel on the New York Mercantile Exchange. Earlier, oil prices hit an all-time trading high in Asia as the greenback's tumble and the decline in stock markets prompted investors to seek shelter in commodities such as crude oil.

Source