Wall Street ends lower on concerns over Lehman

NEW YORK — Stocks tumbled Tuesday, nearly erasing the previous session's big gains, after fresh concerns about the stability of Lehman Brothers Holdings Inc. punctured a sense of optimism about the financial sector. Each of the major indexes lost more than 2 percent. The Dow Jones industrials fell nearly 300 points.

Meanwhile, bond prices jumped as investors sought the safety of government debt.

Wall Street's pullback came one day after the biggest single-session rally in a month in the Dow so some retrenchment was to be expected. Investors had been hopeful about the sector after the Treasury Department announced Sunday it would seize control of mortgage finance companies Fannie Mae and Freddie Mac in an effort to help stabilize the troubled housing market.

But worries over the fate of Lehman rattled investors, and sent the shares of the No. 4 U.S. investment bank down nearly 50 percent. Wall Street is concerned that the bank is having trouble finding new sources of capital, with a possible investment from South Korea's government-owned Korea Development Bank in doubt.

Many financial companies, including Lehman, have struggled with souring mortgage debt on their books and have looked to outside sources of funding to shore up their balance sheets.

"We're back to the fundamentals again," said Denis Amato, chief investment officer at Ancora Advisors in Cleveland, referring to investors' mentality a day after sending stocks higher. "These financial maneuverings don't create prosperity," he said of the government's moves to aid Fannie and Freddie. "Just because you make some financial change doesn't mean all the sudden the economy gets better."

The Dow fell 280.01, or 2.43 percent, to 11,230.73.

Broader indexes also fell. The Standard & Poor's 500 index declined 43.28, or 3.41 percent, to 1,224.51, and the Nasdaq composite index fell 59.95, or 2.64 percent, to 2,209.81.

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The declines ate into returns logged Monday when the Dow jumped 2.6 percent, the S&P 500 rose 2.1 percent and the technology-heavy Nasdaq composite index added 0.62 percent.

Bond prices jumped as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.57 percent in late trading from 3.68 percent late Monday.

Oil closed below $104 a barrel for the first time since early April after Hurricane Ike appeared to be headed away from energy installations in the Gulf Coast. In Vienna, OPEC's president signaled the cartel wouldn't cut production. Light, sweet crude fell $3.08 to settle at $103.26.

The dollar was mixed against other major currencies, while gold prices fell.

A weaker-than-expected report on pending U.S. home sales likely added to Wall Street's downbeat mood. The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2 percent to 86.5 from an upwardly revised June reading of 89.4. The index was 6.8 percent below year-ago levels, and missed projections for a reading of 88.6.

Worries about Lehman weighed on the entire financial sector. Lehman shares hit their lowest since the collapse of hedge fund Long-Term Capital Management in 1998. Shares dropped $6.36, or 45 percent, to close at $7.79.

"It's really spooking the market," said Jim Herrick, manager of equity trading at Baird & Co. "Once rumors came out that talks had broken down it caused stocks to have this massive sell-off."

"They don't want another run on the bank," he said.

Investors are worried that Lehman could suffer the same fate as Bear Stearns Cos., which J.P. Morgan Chase & Co. bought after Bear's near collapse in March.

The pessimism comes a day after investors greeted the government's plan to take over Fannie Mae and Freddie Mac with a burst of enthusiasm. Investors had been worried that the companies, which hold or back about half the nation's mortgage debt, would succumb to a spike in bad loans. Fannie Mae jumped 26 cents, or 35.6 percent, to close at 99 cents, while Freddie Mac closed at 88 cents, unchanged from the previous day's session.

Among financial names, Citigroup Inc. fell $1.44, or 7.1 percent, to $18.88, while Morgan Stanley fell $2.87, or 6.6 percent, to $40.40. Merrill Lynch & Co. declined $2.83, or 10.3 percent, to $24.76.

Shares of American International Group Inc. tumbled $4.39, or 19.3 percent, to $18.37, after hitting a new 52-week low of $18.28 earlier in the session.

Energy companies also lost ground as oil fell.

In corporate news, McDonald's Corp. said its same-store sales, or sales at stores open at least 13 months, rose 4.5 percent in the U.S. in August and 8.5 percent globally. The stock rose 77 cents to $63.19.

The Russell 2000 index of smaller companies fell 25.57, or 3.49 percent, to 707.29.

Declining issues outnumbered advancers by about 9 to 1 on the New York Stock Exchange, where consolidated volume came to 7.19 billion shares, compared with 7.17 billion shares on Monday.

Overseas, Japan's Nikkei stock average fell 1.77 percent. Britain's FTSE 100 fell 0.56 percent, Germany's DAX index fell 0.48 percent, and France's CAC-40 declined 1.08 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Comments

[Chavez08]

Has anyone here actually READ Marx or do we just mock his ideas to be liked by the kids in the varsity jackets?

[LuckyBlessed]

What both communism and privatization capitalism assume humans are altruistic, that they will not lie to each other in “free market” transactions or Marx believing putting humans in such conditions that they would not wish to exploit others. In a simpler form its kinda like Reagan’s“Tickle Down Economics”.

[darthdarcy]

Gravity..!

[studmoose]

Gee, New Jersey Governor Corzine and his cronies decided to place $80 Million of pension money in LEH several months ago, when the stock was around $30 per share. Now it's $7.78. I guess another bright NJ State decision was made and we lost another $57 Million in the process.

[themodernleader]

Relative to the futilitarian trite that I express, I don't want anybody to to operate on the premise that the Market will do anything but essentiallly stay within a trading range until after the election. There is a high probability that the Market will shoot skyward close to the election. Why, when we are a broken, bankrupt organization? The Chinese and others are raising the value of our currency, OPEC is flooding the world with oil. The Fed has been and has recently accelerated the flooding of paper money into the economy, including the FNM,FRM bailout that saves us from financial implosion short-term but has disastrous consequences down the road. Inflation will ease. Gasoline will drop prcipitiously. The stock market will be on a roll. Another fraud will have been pulled over on a gullible citizentry who will vote maverick McCain in Office to finish the goal set by President Reagan to dissolve the power of The Federal government in America. Then he will forever regret that he ever yearned for the Office----if he has a consciience.

[Paul]

A classic bear market. No news good enough to sustain two days of advances.

[ChimpsWithNukes]

"Meanwhile, bond prices jumped as investors sought the safety of government debt."

ROTFLMAO

[themodernleader]

There are some big investors who have finally come to the conclusion that there is nothing left to reap and exploit. If this view spreads, the Market will go into free fall. The American economy and financial system is an empty shell scattered throughout with IOU's. We will witness a stock market crash that will shake this country and the world. Then what will we do? Bush has used all the treasury "backstops" such that our creditworthiness is being questioned for the first time in our history. His administration is responsible for the wreckage of our economic, financial system and currency. And I predict that no Republican will ever be elected to national office again. For a new political mvement will arise out of the ashes resulting from the conflagration of this Administration's fraud and incompetence.

[rationalindependent]

themodernleader says "We will witness a stock market crash that will shake this country and the world. Then what will we do?" Keep cash now, get out of debt now, keep powder dry and BUY the heck out of the market IF the market crashes, makes a low and retests that low for the second time and holds. The second successful retest is the time to buy, check out 1987 crash, which was very scary. Buy fear and sell greed!

[rationalindependent]

LEH will be followed by AIG, WM, WB, GM, F, C and on and on....all need capital; can't bailout all of them. What happens to all the CDS that wil be affected by Mae Mac bailout? Most banks will have to take bigger writedowns, I believe. LEH reports soon and so do rest of the brokers with Goldie reporting next week. Will Goldie, the golden child, remain unaffected? So far they have been top notch and rumored to be a possible buyer for LEH.

Fed is running out of bullets. I cannot see how dollar rise will be sustainable unless ECB lowers rates. Fed has only one more option left, that is to lower rates again given the slow economy and dire financial conditions (unless consumers start spending again with lower oil prices). This will spark inflation again and gold should go up, if this happens. We shall see. I suspect the next bullet from Fed will be pointed inward!

On the bright side, LEH has Neuberger worth $7-8 billion that they can sell as last resort. Also, on the bright side oil down to $102 and people chowing down on Big Mac's. Will McD's add Moose burger to its menu if McCain/ Palin win?

[GerryS]

and abstinence education on the place mat

[thegreatgiginthesky]

What is it about a manufactured rally do people not understand? The rally we had yesterday was manufactured thanks to the government bailing out Freddie and Fannie. Did you really think this was going to last?

[McCainWho]

Can the United States cope with a Sitting President with Post Traumatic Stress Disorder? WOW! This is really a national security issue that must be addressed by our Law Makers. PTSD is a major concern for our Nation's war-time Vets both young and old. Just look at the definition of PTSD on Wikipedia http://en.wikipedia.org/wiki/PTSD.Post traumatic stress disorder (PTSD) is an anxiety disorder that can develop after exposure to one or more terrifying events that threatened or caused grave physical harm. It is a severe and ongoing emotional reaction to an extreme psychological trauma.

[WacokidII]

Time to buy your Euros and sell the dollar. That is my motto!

[JoeBlough]

Sister Sarah will pray us back to Financial health.

[nclwtk]

OK boys and girls, lets join hands tightly and chant in unison, Its only a dream, Its only a dream. And if you think that will help, you should join The McCain campaign who hardly seems to believe that anything is wrong with the economy. The bubble created by the Republican­s/Greenspa­n was enormous and the fallout from the crash will continue to be with us for along time. Lehman is just the next victim of its proprietor's bad judgement, more banks and financial institutions will be following in the footsteps of Lehman, Bear Stearns, Countrywide, Indy Mac, and Fannie and Freddie. Housing is such an important part of the economy that the government should try to keep order in the market as the whole business unwinds.
The stock market appears to be ignoring the presidential election. With volatily to the downside, with brief attempts to look to the bright side, the market is probable is signalling that whoever wins is going to be weighed down with a economy in crisis, an economy that needs more than campaign promises.

[duckfan00]

Another disastrous legacy of the Bush Administra­tion...Now include the economic legacy along with Iraq and Katrina incompeten­ce...A silverspoon fratboy legacy...t­hanks repugs....

[GerryS]

looks like more of the SOS- privatize profit, socialize loss.
I am tired of being looked at as a ca$h cow by the federal government-