U.S. stocks sank on Monday as the
prospect of more losses from the mortgage crisis hurt the
shares of banks and the two biggest home finance providers,
pushing all three major indexes down about 1.5 percent.
Fannie Mae (FNM.N) and Freddie Mac (FRE.N) shed more than
20 percent each after Barron's reported that the U.S. Treasury
may need to bail out the home finance giants, which could wipe
out shareholders and effectively nationalize the
government-sponsored enterprises.
The Treasury Department responded by saying it had no plans
to use its authority to backstop either of the two companies,
which own or guarantee about half of outstanding U.S.
mortgages. Fannie Mae shares fell to their lowest level in
nearly 20 years.
Shares of Lehman Brothers fell 7 percent after the Wall
Street Journal reported analysts are bracing for the investment
bank to report a third-quarter loss of at least $1.8 billion.
U.S. crude oil futures fell 90 cents to settle at $112.87
per barrel, although investors said its price fluctuations were
taking a back seat to financial concerns.
"What we're learning is that the financial crisis is far
from over and that earnings estimates are probably too high,"
said Jim Awad, chairman of W.P. Stewart Asset Management in New
York. "When oil and the stock market go down together, you know
there's real reason to worry."
The Dow Jones industrial average tumbled 180.51 points, or
1.55 percent, to 11,479.39. The Standard & Poor's 500 Index
lost 19.60 points, or 1.51 percent, to 1,278.60. The Nasdaq
Composite Index slid 35.54 points, or 1.45 percent, to
2,416.98.
For the Dow and the S&P, Monday was the worst day since
August 7, while the Nasdaq chalked up its biggest daily decline
since July 28.
The Standard & Poor's Financial Index was down 3.6 percent,
reversing two consecutive sessions of gains.
Fannie Mae shares slid 22.3 percent to $6.15, while Freddie
Mac shares plummeted 25 percent to $4.39, both on the New York
Stock Exchange. Merrill Lynch slashed its price target on
Freddie Mac to $5.75.
Adding to market anxiety was a report showing that home
builder sentiment remained at a record low in August, depressed
by ever-tightening lending conditions and a flood of foreclosed
homes.
"We are still in the throes of the credit crisis," said
Steve Goldman, market strategist at Weeden & Co in Greenwich,
Connecticut. "There's risk that Fannie Mae and Freddie Mac may
require capital from the government."
Lehman Brothers shares slid 7.1 percent to $15.03 on the
NYSE. According to the Wall Street Journal, if losses keep
piling up, Lehman could need to raise additional capital beyond
the $6 billion it got in June.
Shares of Bank of America (BAC.N), the No. 2 U.S. bank,
dropped 4.6 percent to $29.30 on the NYSE, while No. 1 U.S.
bank Citigroup (C.N) fell 5 percent to $17.62. Both were among
the top drags on the S&P.
Aluminum producer Alcoa (AA.N) was a top weight on the Dow,
falling 2.2 percent to $31.11.
On Nasdaq, shares of (GOOG.O), the Web search
company, fell 2.3 percent to $498.30.
Trading volume was light on the New York Stock Exchange,
with about 984.31 million shares changing hands, sharply below
last year's estimated daily average of roughly 1.90 billion,
while on Nasdaq, about 1.68 billion shares traded, also well
below last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones by about 2.5 to
1 on the New York Stock Exchange, while on the Nasdaq,
decliners beat advancers by a ratio of about 2 to 1.
(Additional reporting by Ellis Mnyandu; Editing by Jan
Paschal)
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