NEW YORK, March 15: Cotton futures closed with steep losses on Friday, when news that investment bank Bear Stearns had indirectly tapped the Federal Reserve for a emergency cash, slammed many commodity markets, traders said.

Once the Bear Stearns news hit, many commodity markets were sold as speculative funds sought to turn their holdings into cash as a safety measure, traders said.

Earlier, cotton had edged into positive territory after a day of stability began to restore confidence in a market shaken by two extremely volatile weeks.

The ICE Futures’ May cotton contract settled at 79.30 cents, a loss of 1.51 cents a lb. May’s trading range extended down to 78.16 from an early high at 81.55 cents.

New-crop December cotton futures fell 1.34 cents to end at 87.19 cents per lb.

After eight sessions of limit moves one way or the other prices started to stabilize yesterday and there was a lot of optimism going into today. Because the market needed a rest and some stability, so badly, said Mike Stevens of Swiss Financial Services in Mandeville, Louisiana.

But today, when prices started slipping, and took out some stops, and the news about Bear Stearns hit, it hurt everything. It was really a depresseant, especially going into a weekend, Stevens added.

The Federal Reserve, in an emergency move reminiscent ofthe Great Depression, threw a lifeline to Bear Stearns by making JP Morgan Chase a conduit for funds to the fifth-largest US investment bank.

A cash crunch forced Bear Stearns to turn to the Fed and JP Morgan for emergency funds, triggering an emergency meeting of the Fed Board on Friday morning. The thing with Bear Stearns was really a bucket of cold water on the bulls. It’s hard to say how much that caused selling, but it certainly discouraged buying, a broker said.

Stevens said some merchants seemed to be liquidating options positions, accounting for some of the erratic movements in futures prices.

Despite the steep declines, traders said volumes were light and many players kept to the sidelines to see how the continued volatility shakes out.

ICE data showed Thursday’s cotton volume at 22,693 lots, the lightest in 6 weeks, according to traders, who added that Friday’s count was probably similar. Open interest fell on Thursday by 33,408 lots to 288,610 lots, with put options at 35,236 lots and calls at 19,842 lots.—Reuters