Bear Stearns surges on deal jockeying

NEW YORK (Reuters) - Bear Stearns Cos BSC.N shares surged 23 percent on Tuesday, as investors speculated on the outcome of JPMorgan Chase & Co's (JPM.N) bid to buy the storied investment bank.

The share gains were a glimmer of good news for investors in Wall Street's fifth-largest brokerage, whose shareholders were pummelled on Friday as Federal regulators were forced to provide financing to the troubled firm and on Monday after JPMorgan Chase agreed to buy it for just $2.30 (1.15 pence) a share at current prices.

Some investors said the buying could be bolstered by hopes -- which appeared to have little foundation -- that a rival bidder could emerge. Others said investors who wanted JPMorgan Chase to win the deal were amassing shares.

"You got your risk arbitrage traders that don't think this thing is going through, so they're bidding it up," said Jim Huguet, chief executive of Great Companies LLC, a Tampa, Florida, investment adviser. "That's purely speculation. It's not investing."

Bear Stearns, which JPMorgan agreed to buy for stock in a deal valued at about $2.30 a share at current prices, gained $1.10 to close at $5.91 on the New York Stock Exchange, where it earlier risen to as high as $8.50.

Bondholders and sellers of protection on Bear's debt were also thought to be behind the share rise, analysts said.

"Bondholders (or protection sellers) are buying stock to gain voting rights on the deal," said Tim Backshall, chief derivatives strategist at independent research firm Credit Derivatives Research.

The loss these investors may face on the stock is less than their potential loss on the bonds, if Bear Stearns were to fail, he said.

Bear Stearns shares also surged as the broader U.S. stock market notched its biggest one-day advance in more than five years, after a deep interest rate cut and solid results from Goldman Sachs Group Inc (GS.N) and Lehman Brothers Holdings LEH.N.