Closing Market Report
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Wall Street ends lower on fears about Lehman
By Tim Paradis
Associated Press
NEW YORK » Stocks tumbled yesterday, 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 U.S. 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 Develop- ment Bank in doubt.
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.
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. 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.
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.
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.
Bond prices jumped as stocks retreated. The yield on the benchmark 10-year Treasury note 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. The dollar was mixed against other major currencies, while gold prices fell.