NEW YORK — Wall Street extended its big advance Monday as investors applauded a new agreement that will give Bear Stearns Cos. shareholders five times the payout that was set in a JPMorgan Chase & Co. buyout deal a week ago. The Dow Jones Industrial Average shot up nearly 190 points.
JPMorgan boosted investors' optimism by lifting its offer for Bear Stearns to $10 per share from $2. The revised plan is aimed at soothing Bear Stearns shareholders upset over
JPMorgan's earlier offer, which was made at the behest of the Federal Reserve when Bear Stearns was near collapse. The latest Bear Stearns deal signals that investors' losses might not be as sizable as feared.
Bear Stearns shares jumped $3.42, or 57 percent, to $9.38, while JPMorgan rose 58 cents to $46.55.
"The reason we've rallied the last three or four days is people are saying, 'Hey, even if this paper is worth less than people think, the Fed is willing to come in and buy it at some level,' " said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh.
The Dow rose 187.32, or 1.52 percent, to 12,548.64, after rising more than 260 points Thursday, the last day of trading before the Easter weekend.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 20.37, or 1.53 percent, to 1,349.88, and the Nasdaq composite index rose 68.64, or 3.04 percent, to 2,326.75.
Monday's gains followed a volatile but ultimately strong week for the markets. The Dow and the S&P each showed gains of more than 3 percent for the week, while the Nasdaq advanced more than 2 percent.
Bond prices fell sharply as investors felt less of a need for the safety of government bonds, and also rushed to join the stock market rally. Meanwhile, the dollar was mixed against other major currencies.
The Fed's move to broker the Bear Stearns buyout has allowed investors the sense that not all the debt guaranteed by mortgages is "nuclear waste." It will be some time before Wall Street knows whether the write-downs on mortgages already taken will be sufficient.
Denis Amato, chief investment officer at Ancora Advisors in Cleveland, is skeptical that Wall Street might have put its troubles behind it with the Bear Stearns deal. He said the Fed's extraordinary steps a week ago to lend aid to the struggling investment banks and accept as collateral much of the now-shunned debt was helping the market, but that investors will likely face further concerns.
"I just can't remember in my career having an instance where you know within a week what the watershed event was. Now we all know and that makes me a little bit nervous," he said of those conjecturing that the Bear Stearns deal marks the stock market's bottom.
"I'm not sure that the fundamental economics are still turned enough and that we went down enough in a lot of cases to have this be the real bottom. It may be the one of many bottoms."