NEW YORK (Reuters) - U.S. stocks jumped and bond prices tumbled on Monday as fears over the global credit crisis eased as JP Morgan (JPM.N) boosted its bid for troubled investment bank Bear Stearns and U.S. existing home sales climbed.
The price of the benchmark 10-year U.S. Treasury bond made its biggest single day drop in four years as the stock rally that began last week continued to draw funds away from the safe-haven yields of government debt.
The dollar firmed on the view that signs of a recovery in the battered U.S. housing market could reduce the need for U.S. interest rate cuts, drawing funds to higher-yielding currencies.
Oil fell again, extending a slide from last week’s record to 10 percent on the stronger dollar and lingering worries over slowing energy demand.
Trading volume on most markets was thin as financial exchanges in Europe and parts of Asia remained closed after the Easter weekend.
The crisis that has gripped financial markets for months remained the centre of attention. JPMorgan Chase & Co (JPM.N) raised its all-stock offer for Bear Stearns Cos BSC.N to about $10 (5 pounds) a share, compared with $2 last week, and struck a deal to buy nearly 40 percent of the bank.
The Federal Reserve Bank of New York backed the deal, with support from the U.S. Treasury Department, with $29 billion in special financing. The New York Fed will also take control of a $30 billion portfolio of Bear’s hard to sell assets.
In Europe, Prime Minister Gordon Brown and French President Nicolas Sarkozy will urge banks this week to make “full and immediate disclosure” of write-offs due to the global credit crisis, British officials said.
Uncertainty over the amount of bad debt on banks’ books, which some estimates put as high as $600 billion, has sapped investor confidence and pushed many stock indexes around the world into bear territory earlier this month.
Bear Stearns, which had been ranked the No. 5 U.S. investment bank, collapsed amid large subprime mortgage losses and fading investor confidence prompted a run on the bank.
“More write-downs are expected in the financial space but people are starting to see a light at the end of the tunnel and they suspect that it’s not an oncoming train,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
Bear Stearns shares surged almost 80 percent to $11.38 on the news of the five-fold increase in the bid offer from JPMorgan, whose shares rose 1.11 percent to $46.48.
The Dow Jones industrial average .DJI was up 187.32 points, or 1.52 percent, at 12,548.64. The Standard & Poor's 500 Index .SPX was up 20.37 points, or 1.53 percent, at 1,349.88. The Nasdaq Composite Index .IXIC was up 68.64 points, or 3.04 percent, at 2,326.75.
The dollar rallied across the board and climbed to session highs versus the yen, boosted as U.S. Treasury prices yields climbed after the surprising U.S. existing home sales.
The euro fell against the dollar to $1.5343, from $1.5420 just before. Against the yen, the dollar jumped to the day’s highs at 100.89 yen, well off a nearly 13-year low of 95.77 yen posted last week.
The dollar index, a measure of the greenback’s value against six major currencies, was up 0.22 percent at 72.942.DXY. It earlier rose 73.194.
While the pace of existing homes was better than consensus estimates, a bottom in the beleaguered U.S. housing market is too early call, many analysts said.
Existing home sales rose 2.9 percent to a 5.03 million-unit annual rate in February but median home prices fell 8.2 percent, the sharpest drop since the National Association of Realtors began keeping records in 1968.
“Selling more homes cheaper — too early to call that a bottom,” said Ian Lyngen, interest rate strategist at RBS Greenwich Capital in Greenwich, Connecticut.
U.S. Treasury debt prices fell as a stock market rally and positive developments on the housing and credit front weakened the bid for safe-haven U.S. government debt.
Late in the session, the 30-year Treasury’s price fell three full points in thin trading, while its yield, which moves inversely to its price, rose to 4.34 percent from 4.17 percent late on Thursday.
U.S. short-term interest rate futures also fell sharply as traders reduced their bets on a sharp rate cut. The implied prospects for the Federal Reserve to cut a key lending rate by half a percentage point in April fell to 22 percent from 56 percent last week. A 25 basis point rate cut, to 2 percent, is still fully priced.
U.S. crude futures CLc1 settled down 98 cents at $100.86 after touching a low of $99.95, bringing them further below last week’s record $111.80. London Brent crude LCOc1 fell 52 cents to $99.86 a barrel.
The dollar’s recovery from recent lows against the euro pressured the nominal price of almost all dollar-denominated commodities, including crude, analysts said.
Asian shares rose in holiday-thinned trade on Monday, led by a 4 percent gain for Taiwan after an opposition win in the presidential election boosted expectations for better trade ties and less political tension with China.
Taiwan markets surged the first trading day after a victory by Ma Ying-jeou of the more China-friendly Nationalist Party, or Kuomintang (KMT), boosting hopes for a greater flow of tourists, trade and capital between Taiwan and China.
Taiwan's main TAIEX .TWII jumped more than 6 percent at the open -- its biggest one-day percentage gain in more than seven years -- before easing back to a gain of 4 percent.
Activity was subdued in Asia as markets in many parts of the region were closed for the Easter holiday.
MSCI’s index of shares outside Japan .MSCIAPJ rose 1.3 percent, although it is still down 18 percent so far this year.
Tokyo's Nikkei index .N225 traded in and out of the red to end the session flat. Investors were braced for the upcoming corporate results season.
Reporting by Herbert Lash. Editing by Richard Satran