JPMorgan Could Up Bear Offer

JPMorgan Chase & Co. was discussing a deal that would increase fivefold its offer for Bear Stearns Cos. to $10 a share, The New York Times reported Monday.

The talks Sunday were an attempt to satisfy Bear Stearns stockholders upset over JPMorgan's offer of $2 a share for the struggling investment bank, the newspaper said on its Web site, citing people involved in the negotiations.

The original price for Bear Stearns was part of a deal struck last week at the urging of the Federal Reserve and Treasury Department.

The Fed, which would need to approve any change in the agreement, was balking at the new price, the Times said. Such opposition could postpone the new agreement or derail it entirely.

In an attempt to speed majority shareholder approval, Bears board was trying to authorize the sale of 39.5 percent of the firm to JPMorgan, the Times said. State law in Delaware, where the companies are incorporated, allows a company to sell up to 40 percent without shareholder approval.

A spokeswoman for JPMorgan declined to comment Sunday night, the Times said. A Bear Stearns representative could not be reached.

A spokesman for the Federal Reserve would not comment on the central banks involvement in the negotiations, but denied it had directed the original sale price, the newspaper said.

Wall St sinks as Bear shakes faith in banking

Stocks fell on Monday after JPMorgan Chase (NYSE:JPM - News) bought Bear Stearns (NYSE:BSC - News) at a fire sale price and the Federal Reserve provided emergency cash to Wall Street as the global credit crisis worsened.

But stocks trimmed losses as shares of JPMorgan led advancers, while the Fed's move to cut its discount rate to 3.25 percent and expand lending to a wider range of big financial firms -- the first such move since the Great Depression -- helped Wall Street ease a bit off early lows.

Futures have been pricing in a 100-basis-point cut from the Fed when it meets tomorrow.

JPMorgan is buying Bear Stearns for $236 million, or $2 per share -- one-fifteenth of the price at Friday's close. 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 87.3 percent to $3.91 at midday on Monday.

The financial sector tumbled, as Lehman Brothers (NYSE:LEH - News) sank 23.9 to $29.86 and Citigroup dropped 7.3 percent to $18.35. The Standard & Poor's financial index (^GSPF - News) was down 3.6 percent.

JPMorgan, the top gainer in both the blue-chip Dow average and the S&P 500, climbed 8.3 percent to $39.58, preventing an uglier morning on Wall Street.

"The Fed took very aggressive action over the course of the weekend, and so that's having an impact," said Michael Darda, chief economist at MKM Partners LLC, in Greenwich, Connecticut.

"The problem is that action will have an inflationary price tag. And you can see that in all of the commodity and currency indicators."

The Dow Jones industrial average (DJI:^DJI - News) dropped 114.39 points, or 0.96 percent, to 11,836.70. The Standard & Poor's 500 Index (^SPX - News) shed 23.44 points, or 1.82 percent, to 1,264.70. The Nasdaq Composite Index (Nasdaq:^IXIC - News) tumbled 44.78 points, or 2.02 percent, to 2,167.71.

In a fresh sign of faltering confidence in the U.S. economy and financial system, the dollar sank to its weakest against the yen since 1995 and slumped against the euro.

The "fire sale" of Bear has put U.S. banks at risk as it will result in valuation adjustments that could result in a drop of stock prices by as much as 50 percent, Oppenheimer & Co analyst Meredith Whitney wrote.

Elsewhere in the financial sector, mortgage insurer PMI Group Inc (NYSE:PMI - News) reported its biggest-ever quarterly loss, mainly due to losses on its investment in bond insurer FGIC Corp. It also slashed its dividend by more than 70 percent.

Shares of PMI dropped 11.3 percent to $5.05, after hitting a lifetime low of $4.82 earlier in the session.

The New York Federal Reserve Bank reported an unexpectedly steep drop in its manufacturing survey and a rise in prices paid. It was the worst reading of business conditions in the state of New York since the index was launched in July 2001.

Wall St. awaits another rally

This week, Wall Street hopes economic, earnings data keeps rally going

The stock market has been on the upswing, but few investors are relaxing just yet. This week's data on housing, retailers and labor costs will give Wall Street an idea of whether the economy is weakening or inflation is accelerating - or both.

Wall Street had a case of the winter blues in January, and understandably. With banks reporting huge losses, uncertainty brewing about whether the economy is in recession, and Americans struggling to keep up with their debt payments, there was nowhere to go but down. The Standard & Poor's 500 index recorded its worst January since 1990.

But the stock market has bounced back - last week, the Dow Jones industrial average jumped 4.39 percent, the Standard & Poor's 500 index added 3.75 percent, and the Nasdaq composite index rose 4.87 percent.

The Dow remains 10 percent below the record close of 14,164.53 it reached on Oct. 9, but has recovered nearly 10 percent from the 15-month lows it hit in January.

There were many factors that helped buoy the market last week. The Federal Reserve met the market's hopes for another big rate cut by slashing key rates a half-point. Banks and regulators indicated they are working to help out the distressed companies that insure mortgage-backed bonds. And Microsoft Corp.'s (MSFT, Fortune 500) bid for the struggling Internet provider Yahoo Inc. (YHOO, Fortune 500) reassured Wall Street that although the credit markets are tight, deals are being pitched.

Recent government reports have not painted a rosy picture of the economy, but they haven't indicated the nation is in the midst of a deep recession, either.

The Labor Department's employment report last week showed a net job loss in January for the first time in four years, but a report from the Institute for Supply Management said the manufacturing sector expanded. The Commerce Department said personal spending is growing at the weakest pace in more than a year, but it also reported a solid gain in orders of big-ticket, durable goods.

The markets are angling for more rate cuts to stoke the economy, but what could tie the Fed's hands is inflation. High food, energy and healthcare costs are a reason consumers - particularly homeowners with tough-to-pay mortgages - are cutting back on discretionary spending. Those high prices may also be the only reason readings on personal spending are in positive territory.

The Commerce Department's index last week for personal consumption expenditures, a gauge of inflation, rose 0.2 percent in December from November levels. This week, the Labor Department reports on productivity and labor costs; the market is expecting labor costs to decline, and could be disappointed if they end up being higher.

"The worst of all possible worlds is stagflation," said Janna Sampson, director of portfolio management at Oakbrook Investments. Stagflation happens when the economy weakens at the same time prices are rising. It's a problem that can't be solved with rate moves; rate cuts spur inflation but boost growth, while hikes control inflation but also dampen growth.

This week, economists surveyed by Thomson/IFR are preparing for more signs that the economy is still growing, but very slowly because of a weak consumer.

They expect the Commerce Department's December factory orders index on Monday to tick up and the Institute for Supply Management's Tuesday report on January service sector growth to show a slight slowdown. They also expect the weekly ICSC-UBS chain store sales index on Tuesday to post a decline.

Meanwhile, the National Association of Realtors will release on Thursday its index on pending sales of existing homes, and economists predict a modest increase. And that same day, retailers are releasing their sales results for January.

Investors will also be paying close attention to speeches from Fed officials for insight into their thoughts on the economy and inflation, and whether the central bank is leaning toward lowering rates again when it meets March 18. Atlanta Fed President Dennis Lockhart, Richmond Fed President Jeffrey Lacker, Fed Governor Randall Kroszner, Philadelphia Fed President Charles Plosser and San Francisco Fed President Janet Yellen are all making public appearances this week.

The bulk of the earnings season is over, but there are some big names left to release their quarterly results. Companies reporting this week include media names such as News Corp. (NWS, Fortune 500), Walt Disney (DIS, Fortune 500) and Time Warner Inc. (TWX, Fortune 500); food sellers like Wendy's International Inc. (WEN) and Yum Brands Inc. (YUM, Fortune 500); and the homebuilder D.R. Horton (DHI, Fortune 500).