Wall Street retreats as financials weaken

Patrick Kenny, left, of Lehman Brothers MarketMakers talks to fellow traders on the floor of the New York Stock Exchange Friday, Sept. 5, 2008, in New York. Selling swept across Wall Street for a second straight session on news that the economy shed jobs for the eighth straight month in August and at a faster-than-expected pace. (AP Photo/Henny Ray Abrams)

NEW YORK (AP) -- Stocks fell Tuesday after fresh worries about the stability of Lehman Brothers Holdings Inc. touched off renewed jitters about the overall financial sector. The Dow Jones industrials fell about 150 points.

Bond prices jumped as investors sought the safety of government debt.

Wall Street's pullback comes a day after the biggest single-session rally in a month in the Dow so some retrenchment might have been expected. But it was worries about Lehman that punctured a sense of optimism about the financials. Investors had been optimistic about the sector after the Treasury Department announced Sunday it would seize control of mortgage lenders Fannie Mae and Freddie Mac to stabilize the companies.

Lehman fell $5.15, or 36 percent, to $9 as investors worried that the No. 4 U.S. investment bank is having trouble finding fresh sources of capital. Investors grew worried that a possible investment from South Korea's government owned Korea Development Bank remained in doubt. The two sides are said to have called off talks, according to media reports.

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 on news of the move to aid Fannie Mae and Freddie Mac. "These financial maneuverings don't create prosperity," he said of the government's moves. "Just because you make some financial change doesn't mean all the sudden the economy gets better."

In midafternoon trading, the Dow fell 148.76, or 1.29 percent, to 11,361.98.

Broader indexes also fell. The Standard & Poor's 500 index declined 24.71, or 1.95 percent, to 1,243.08 and the Nasdaq composite index fell 31.02, or 1.37 percent, to 2,238.74.

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 3.58 percent from 3.68 percent late Monday.

Light, sweet crude fell $2.26 to $104.08 on the New York Mercantile Exchange as Hurricane Ike appeared to be headed away from energy installations in the Gulf Coast. In addition, comments from Saudi Arabia suggested that OPEC could decide to keep crude output steady despite worries about falling prices.

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.

The market's decline 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 rose 34 cents, or 47 percent, to $1.07, while Freddie Mac rose 10 cents, or 10 percent, to 98 cents.

Among financial names, Citigroup Inc. fell 85 cents, or 4.2 percent, to $19.47, while Morgan Stanley fell $2.05, or 4.8 percent, to $41.22. Merrill Lynch & Co. declined $1.99, or 7.2 percent, to $25.60.

Energy names also lost ground as oil fell. ConocoPhillips fell $2.77, or 3.7 percent, to $71.92 and Schlumberger Ltd. slid $3.06, or 3.6 percent, to $82.95.

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. Shares rose $1.21, or 2 percent, to $63.61.

The Russell 2000 index of smaller companies fell 11.44, or 1.56 percent, to 721.42.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 957.1 million shares.

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.


On the Net:

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

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