Bear Stearns shares recover late Tuesday

NEW YORK (Reuters) -Bear Stearns Cos BSC.N shares pared losses late Tuesday after securities regulators said they were comfortable with capital levels at the largest U.S. investment banks, including Bear, and a company insider denied Bear was facing a cash crunch.

After falling as much as 11 percent earlier in the day, Bear shares rose 3.15 percent to $64.26 in late afternoon trading. The shares fell on concerns that the investment bank could face a cash crunch from bigger-than-expected write-downs, and could be hampered by a business model based on risky mortgage securities.

Bear Stearns, the fifth-largest U.S. investment bank, said on Monday its balance sheet, liquidity and capital remained strong.

U.S. Securities and Exchange Chairman Christopher Cox told reporters on Tuesday that capital adequacy at the five largest U.S. investment banks was being closely watched.

"We are reviewing the adequacy of capital at the holding company level on a constant basis, daily in some cases," Cox said.

"We have a good deal of comfort about the capital cushions that these firms have been on," he said, including Bear.

The stock's downward path on Tuesday contrasted with wider market activity on Tuesday. Financial shares led U.S. stocks higher after the Federal Reserve said it may increase the size of its latest $200 billion lending facility to boost financial market operations.

On Tuesday, Deutsche Bank cut its price target to $72 from $90 for Bear Stearns shares, and lowered its earnings estimates for fiscal 2008 and 2009, saying it thinks write-downs are likely to be worse than expected and fundamentals will weaken somewhat.

"Given Bear's higher exposure to the softening mortgage market and less diversification by product and region than peers, we believe Bear should trade at a discount to its 5-year average multiples," analyst Mike Mayo wrote in an investor note.

A Bear Stearns insider, who asked not to be identified, said on Tuesday there was no truth to market speculation that Bear faced a cash crunch.

A Bear Stearns official declined to comment.

Punk Ziegel & Co analyst Richard Bove said the primary concern was Bear being forced to build a new business model.

"Bear Stearns' key strength in the old cycle was capturing the revenue growth in the mortgage markets," Bove wrote in a note.

"The business is now unlikely to show any growth for five years," he said. "The profits are also likely to be squeezed out as the more esoteric securities are rejected by the markets."

Punk Ziegel cut its price target for Bear to $45 from $90. It also lowered its earnings estimates to $2.69 a share from $6.47 for fiscal 2008 and to $4.80 from $7.67 for fiscal 2009.

(Reporting by Lilla Zuill, Joseph Giannone and Rachelle Younglai; Editing by Lisa Von Ahn)