Bear scares Wall Street
Stocks slump on worries about Bear Stearns' liquidity, knocking out earlier gains sparked by a mild reading on consumer inflation.
NEW YORK (CNNMoney.com) -- Stocks tumbled Friday morning after news that Bear Stearns had taken emergency funding exacerbated fears that the Wall Street firm is in a liquidity crisis.
The Dow Jones industrial average (INDU), the broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all lost at least 1% in morning trading.
Stocks rose in the first few minutes of trade as investors welcomed a mild reading on consumer inflation and took in stride the day's new records for oil, gold and gas prices.
However, stocks turned lower as the Bear Stearns news was absorbed, with investors unnerved by the plummet in the company's shares.
Bear Stearns (BSC, Fortune 500) plunged 43% after JPMorgan Chase (JPM, Fortune 500) and the New York Federal Reserve Bank announced plans to provide short-term funding to the troubled bank for 28 days. JPMorgan also said it is working with Bear Stearns to find permanent financing or other options.
The CEO of Bear Stearns said that market rumors that it is strapped for cash have caused the company's liquidity position to significantly deteriorate over the last 24 hours.
Stocks staged a late-session rally Thursday after Standard & Poor's said an end to mortgage writedowns is in sight. But the tone Friday was negative amid a fresh selloff in financials.
Investors were also gearing up for speeches from President Bush and Fed Chairman Ben Bernanke later in the day.
Inflation holds steady. The consumer price index (CPI) held steady in February, surprising economists who were expecting a rise of 0.3% in the month. So-called "core" CPI, which strips out volatile food and energy prices, also maintained January levels. Economists thought core CPI would rise 0.2%, according to a Briefing.com survey.
The report was a welcome development ahead of next week's Fed policy meeting and amid worries that inflationary pressures will limit the central bank's ability to keep lowering borrowing costs to shore up the weak economy.
However, the report's implications could be short-lived, with commodity prices continuing to surge on the falling dollar and worldwide demand.
Other markets. U.S. light crude oil for April delivery rose 7 cents to $110.40 a barrel on the New York Mercantile Exchange after hitting a record $111 during the previous trading session.
COMEX gold for April delivery added $4.20 to $998 an ounce after hitting an all-time record of $1,001 an ounce Thursday.
Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.41% from 3.52% late Wednesday. Bond prices and yields move in opposite directions. 
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