US STOCKS-Market falls as Bear Stearns revives credit fears

(Updates to midday, changes byline)

By Justin Grant

NEW YORK, March 14 (Reuters) - U.S. stocks fell on Friday as concerns about the fallout from Bear Stearns' BSC.N deteriorating cash position prompted investors to sell financial shares.

All three major indexes briefly lost more than 2 percent after JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and the Federal Reserve Bank of New York agreed to provide emergency financing to Bear Stearns, the fifth-largest U.S. investment bank, for up to 28 days. Bear Stearns, whose stock dropped as much as 50 percent in morning trading, said the move would let it continue normal operations.

The Standard & Poor's financial index fell 2.5 percent, as investors feared there could be more trouble in the financial sector.

Top drags included shares of Lehman Brothers Holdings (LEH.N: Quote, Profile, Research), which fell nearly 9 percent; Citigroup Inc (C.N: Quote, Profile, Research), down more than 4 percent, and JPMorgan Chase, which fell 2 percent.

"There's a lot of confusion ... a lot of uncertainty. It looked like the whole process of the subprime began with Bear Stearns and a couple of other hedge funds, and hopefully it ends with Bear Stearns," said Edward Craig , managing director and head of U.S. cash equities trading at Jefferies.

The Dow Jones industrial average .DJI shed 147.19 points, or 1.21 percent, to 11,998.55. The Standard & Poor's 500 Index .SPX dropped 21.32 points, or 1.62 percent, to 1,294.16. The Nasdaq Composite Index .IXIC was off 36.71 points, or 1.62 percent, to 2,226.90.

Bear Stearns said it will hold a conference call at 12:30 p.m. to address speculation in the marketplace related to its announcement this morning. Before the opening bell, Bear Stearns said its liquidity position had significantly deteriorated in the last 24 hours.