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A fire sale of Bear Stearns Cos Inc stunned Wall Street and pummeled global financial stocks on the eve of an expected U.S. interest rate cut aimed at preventing a meltdown of the financial system.

On a day marked by gut-wrenching drops of financial shares such as Lehman Brothers, U.S. stocks almost ventured into bear market territory — a drop of 20 percent from the October high.

The market staged a late partial recovery as optimism set in over an expected decision by the U.S. Federal Reserve to slash rates by as much as 1 percentage point on Tuesday to jump-start financial markets and prevent a recession. The cut would be the latest in a series that has brought down borrowing costs but hammered the U.S. dollar to record lows.

“They have spent some bullets. The Fed has a lot more bullets than we’ve seen so far,” said Brian Edmonds, managing director of fixed income at Cantor Fitzgerald in New York.

Things looked bleak on Monday morning.

Staff at Bear Stearns’ Manhattan headquarters were welcomed to work by a two-dollar bill stuck to the revolving doors — a spoof on the rock-bottom price of $2 a share that JPMorgan Chase is paying for the firm pay day loan. A hopeful Coldwell Banker real estate agent was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.

The combination of Bear’s swift bailout and the Fed’s offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.

And it scared market players worldwide. 

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