Stocks mixed in wake of big buyout

NEW YORK – Wall Street ended a temperamental session widely mixed Monday after investors grappled with JPMorgan Chase & Co.’s government-backed buyout of the stricken investment bank Bear Stearns Cos.

The Dow Jones industrials recovered from an initial drop of nearly 200 points to finish up about 21 points. The broader Standard & Poor’s 500 and Nasdaq composite indexes ended lower as investors bailed out of investment banks and small-cap stocks and fled instead to large companies apt to be reliable during a weak economy.

The buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. And some unprecedented moves by the Federal Reserve gave investors a bit of solace on what many predicted would be a day of precipitous losses in the stock market.

Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night – two days before its scheduled meeting today. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.

The Fed appears to be pledging to do everything in its power to keep the credit crisis from decimating the financial industry and the economy. Policymakers at the central bank are expected to reduce the target fed funds rate – the rate banks charge each other for overnight loans – by at least a half-point today, and perhaps even a full point.

But the market remained extremely volatile. The sale of Bear Stearns – at a minuscule $2.21 a share as of Monday’s close, or a total of $260.5 million – stirred fear among investors worldwide about other banks’ exposure to the troubled credit markets.

The Dow rose 21.16, or 0.18 percent, to 11,972.25, after falling nearly 200 and rising more than 100. The blue chip index was supported partially by JPMorgan, by far the biggest gainer among the 30 component stocks. JPMorgan rose $3.77, or 10.3 percent, to $40.31.

The Standard & Poor’s 500 index fell 11.54, or 0.90 percent, to 1,276.60. The Nasdaq composite index, heavily populated by small and high-tech companies, fell 35.48, or 1.60 percent, to 2,177.01. The Russell 2000 index of smaller companies fell 12.42, or 1.87 percent, to 650.48.

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