US STOCKS-Market slides on Bear Stearns liquidity issues

(Updates to mid-morning)

By Kristina Cooke

NEW YORK, March 14 (Reuters) - U.S. stocks fell sharply on Friday led by financial stocks on news that Bear Stearns' BSC.N cash position had unraveled in the last 24 hours, prompting it to secure emergency financing.

JPMorgan Chase & Co (JPM.N) and the Federal Reserve Bank of New York agreed to provide financing to Bear Stearns, the fifth-largest U.S. investment bank for up to 28 days. Bear Stearns said the move would allow it to continue normal operations.

Bear Stearns shares plummeted as much as 50 percent before retracing some of those losses. The S&P financials .GSPF fell 2.9 percent as investors worried there could be further victims of the lingering global credit crisis.

"Another piece of mistrust. The CFO yesterday said fears of liquidity concerns are overblown," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

"But what happened in 24 hours that they didn't know 24 hours ago? But overnight, the company needed a government bail out," he added.

The Dow Jones industrial average .DJI was down 159.57 points, or 1.31 percent, at 11,986.17. The Standard & Poor's 500 Index .SPX was down 22.09 points, or 1.68 percent, at 1,293.39. The Nasdaq Composite Index .IXIC was down 34.69 points, or 1.53 percent, at 2,228.92.

Bear Stearns shares were down 46.7 percent to $30.36.

After the news on Bear Stearns, U.S. interest rate futures showed a growing perceived chance of a one percentage point cut at the Fed's rate-setting meeting on Tuesday.

The credit concerns overshadowed earlier tame inflation data.

The U.S. Labor Department said cheaper energy and transportation helped keep overall consumer prices in check, a surprise after a period of run-ups that had heightened concern over inflation. Analysts were skeptical, however, given record high prices of commodities from oil to gold.

Fed Chairman Ben Bernanke will speak on "Fostering Sustainable Homeownership" at a conference in Washington at 1 p.m. (1700 GMT). (Editing by James Dalgleish; Editing by James Dalgleish)