Stock markets across the globe have slumped in reaction to the emergency rescue of Bear Stearns.

US stocks fell yesterday after JPMorgan Chase bought Bear Stearns at a fire sale price and the Federal Reserve provided emergency cash to Wall Street as the global credit crisis worsened.

JPMorgan is buying Bear Stearns for $236 million, or $2 per share - one-fifteenth of the price at Friday's close. Shares of Bear, the fifth-largest US investment bank, reached a high of $172.61 last year.

Financial shares tumbled, with Bear down nearly 90 per cent and Lehman Brothers down more than 22 per cent at $30.30 on the NYSE. One exception was JPMorgan stock, up 9.1 per cent to $39.86 on the NYSE, which helped stem declines on the Dow.

The Fed made an emergency quarter-percentage-point cut to its discount rate to 3.25 per cent on Sunday and expanded lending to a wider range of big financial firms, in the first such move since the Great Depression of nearly 80 years ago.

"This is going to get worse the longer the market prolongs the inevitable," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "With all these discount rate cuts, it seems like the Fed is running out of silver bullets. Maybe they have to come up with something bigger."

The Dow Jones industrial average fell 58.62 points, or 0.49 per cent, to 11,892.47. The Standard & Poor's 500 Index dropped 14.84 points, or 1.15 per cent, to 1,273.30. The Nasdaq Composite Index slid 26.50 points, or 1.20 per cent, to 2,185.99.

In a fresh sign of faltering confidence in the US 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 US banks at risk as it will result in valuation adjustments that could see share prices fall as much as 50 per cent, Oppenheimer & Co analyst Meredith Whitney wrote.