Between Bear Stearns’s warring shareholders and bondholders and those looking to buy it (JPMorgan) and those looking to sell it (market shorts) and those investigating trades on it (the SEC) and those who just want it all to be over already (the Fed) this is shaping up to be a showdown for the ages. The overarching question of this white-shoe, white-knuckle battle: Is it really reasonable to expect to pay $2 a share for a monster bank that was trading at $65 just last week?

Investors aren't ready to give up on the Bear just yet.

Betting that J.P. Morgan Chase & Co. will have to pay up to seal its fire-sale deal to acquire Bear Stearns Cos., speculators drove up the stock 23% yesterday to $5.91 in heavy volume on the Big Board.

The run-up in Bear Stearns shares has set the stage for a high-stakes game of brinksmanship, with angry investors in one corner and J.P. Morgan Chief Executive James Dimon and the Federal Reserve, which pushed for the deal, in the other.

Shareholders are threatening to derail the deal by voting against it. But in doing so, do they run the risk of upsetting the Fed and upending J.P. Morgan's guarantee of Bear's positions, making the company insolvent? Conversely, would the Fed, which set a precedent with its Bear Stearns bailout, allow relatively small sums to scuttle its salvage mission?

"I could see [a higher bid] if there is a holdup," said one person involved in the transaction. "But Jamie is a very tough guy....There may ultimately be a huge confrontation here. There could be a stare-down."

Bear Stearns is trading at about three times the offer price. J.P. Morgan's offer originally valued the bank at $2 a share, but a 16% increase in its own stock has increased the value of the all-stock offer to $339 million, or $2.34 a share.

Several factors have played into the rally, traders said, but the main driver appeared to be incredulity, especially among employees, who own 30% of the stock but have been largely restricted from trading.

"This is a stock that was trading at $65" on Wednesday, said one trader. "Where do you see a major firm that's been around for years go from $65 a share to being sold for $2 a couple of days later. That's never happened."

Part of yesterday's rise was attributed to Bear Stearns's bondholders, who are eager to see the deal get done and avoid a bankruptcy. Bear Stearns's debt issues will be converted into J.P. Morgan bonds if the deal is approved, and these creditors are buying shares so they can vote on a deal. Other investors are shorting Bear bonds and credit-default swaps, and are buying Bear shares and will vote "no," hoping to push Bear into bankruptcy.

The jump in J.P. Morgan's shares Monday added $12.8 billion to its market capitalization. On Friday, Bear's stock-market value was at $5.7 billion, so J.P. Morgan has gained more than twice what Bear was worth on that day by agreeing to pay just $339 million in stock.

The person closely involved in the transaction acknowledged that J.P. Morgan's $2.34 offer might not be the last word. If it looks like a majority of Bear shareholders are poised to reject the deal, J.P. Morgan may decide to sweeten its offer -- or walk away from the deal entirely, likely forcing Bear to seek bankruptcy-court protection.

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