US STOCKS-Bear Stearns' demise sinks U.S. stocks

(Updates to mid-afternoon)

By Justin Grant

NEW YORK, March 17 (Reuters) - U.S. stocks fell on Monday after JPMorgan Chase (JPM.N: Quote, Profile, Research) agreed to buy Bear Stearns BSC.N at a bargain price and the Federal Reserve provided emergency cash to Wall Street as the global credit crisis worsened.

At one point the Standard & Poor's 500 index fell within four points of a bear market level, which would be 20 percent down from a closing high reached last October.

Traders feared that the Fed's surprise Sunday move to cut its discount rate to 3.25 percent and expand lending to more big financial firms -- the first such action since the Great Depression -- won't be enough to curb the global meltdown in credit markets.

JPMorgan said it would buy Bear Stearns for $236 million, or $2 per share -- one-fifteenth of the price at Friday's close. For more see [ID:nL17118660]. Shares of Bear, which until recently had ranked as the fifth-largest U.S. investment bank, reached a high of $172.61 last year. Bear's stock plummeted 85.8 percent to $4.26 on Monday afternoon.

The overall financial sector tumbled, as Lehman Brothers LEH.N sank 38 percent to $24.32 and Citigroup (C.N: Quote, Profile, Research) dropped 7 percent to $18.38. The Standard & Poor's financial index was down 3.2 percent.

Interest rate futures have been pricing in a one-percentage point cut in benchmark U.S. interest rates by the Fed when it meets tomorrow, following 2.25 points of rate cuts since September to ease strains in credit markets.

JPMorgan, a top gainer in both the blue-chip Dow average and the S&P 500, climbed 8 percent to $39.45, preventing an uglier day on Wall Street.