Stocks fall with Lehman Bros. jitters

NEW YORK - Stocks tumbled yesterday after fresh concerns about the stability of Lehman Bros. Holdings Inc. touched off renewed jitters about the overall financial sector. Each of the major indexes lost more than 2 percent.

Wall Street's pullback nearly erased the Dow Jones industrials' biggest single-session gain in a month as worries about Lehman punctured a sense of optimism about the financial sector. Investors had been hopeful about the sector after the Treasury Department announced Sunday that it would seize control of mortgage-finance companies Fannie Mae and Freddie Mac to help stabilize the housing market.

But yesterday, shares of Lehman, the No. 4 U.S. investment bank, lost nearly half their value as investors worried that the company was having trouble finding fresh sources of capital. Media reports said a possible investment from South Korea's government-owned Korea Development Bank was in doubt.

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

"These financial maneuverings don't create prosperity," Denis Amato, chief investment officer at Ancora Advisors L.L.C., of Cleveland, said of the government's steps to aid Fannie and Freddie. "Just because you make some financial change doesn't mean all of a sudden the economy gets better."

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

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, Austria, OPEC's president signaled that the cartel would not cut production. Light, sweet crude fell $3.08 to settle at $103.26.

Worries about Lehman weighed on the entire financial sector. Shares dropped $6.36, or 44.95 percent, to close at $7.79.

Investors are worried that Lehman could suffer the same fate as the Bear Stearns Cos. Inc., which JPMorgan 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 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 35.62 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 7.09 percent, to $18.88, while Morgan Stanley fell $2.87, or 6.63 percent, to $40.40. Merrill Lynch & Co. Inc. declined $2.83, or 10.26 percent, to $24.76.

The Russell 2000 index of smaller companies fell 21.08, or 2.88 percent, to 711.78.

Overseas, Japan's Nikkei stock average fell 1.17 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.