* Financials fall, led by Fannie, Freddie
* U.S. rescue would hurt GSEs' shareholders
* Jitters over possible big loss by Lehman--newspaper
* Dow off 1 pct, S&P 500 of 0.9 pct, Nasdaq off 0.8 pct
(Updates to midday, changes byline)
By Steven C. Johnson
NEW YORK, Aug 18 (Reuters) - U.S. stocks fell on Monday as
investors fretted about the prospect of more losses from the
mortgage crisis, bruising shares of the two big U.S. home
finance providers and other financial companies.
A one-two punch of gloomy financial news undermined market
sentiment on Monday and reminded investors that the credit
crisis and housing slump were far from over.
Shares of mortgage finance giants Fannie Mae <FNM.N> and
Freddie Mac <FRE.N> each fell more than 16 percent after a
Barron's report suggested the U.S. Treasury may recapitalize
the companies, a move that could dilute the value of stock
holdings.
The Treasury Department responded by saying it had no
plans to backstop either of the two companies, but Freddie
shares still dropped to their lowest level since July 15. For
details, see []
Meanwhile, the Wall Street Journal reported that some
analysts are bracing for investment bank Lehman Brothers
<LEH.N> to report a third-quarter loss of $1.8 billion or
more. Its stock fell over 3 percent. For details, see
[]
The Standard & Poor's Financial Index <.GSPF> was down 2.3
percent, reversing two consecutive sessions of gains.
"Investors have been trying to put the housing and credit
crisis behind them. They want to believe we're in the eighth
or ninth inning, but every time news like this comes up, they
have to readjust their thinking," said Paul Nolte, director of
investments at Hinsdale Associates in Hinsdale, Illinois.
The Dow Jones industrial average <> slid 115.05
points, or 0.99 percent, to 11,544.85, off its session low at
11,527.18. The Standard & Poor's 500 Index <.SPX> dropped
10.91 points, or 0.84 percent, to 1,287.29. The Nasdaq
Composite Index <> sank 23.83 points, or 0.97 percent, to
2,428.69.
U.S. crude oil for September delivery <CLc1> was down 32
cents at $113.45 per barrel, although investors said its price
fluctuations were taking a back seat to financial concerns.
Freddie Mac shares plummeted 16.1 percent to $4.90 on the
New York Stock Exchange, while those of Fannie Mae slid 16.8
percent to $6.56. Merrill Lynch slashed its price target on
Freddie Mac to $5.75.
Lehman Brothers shares declined 3.5 percent to $15.61 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,
fell 2.7 percent to $29.87 on the NYSE, making the stock one
of the top weights on the S&P 500.
Technology services company International Business
Machines <IBM.N> was a top drag on the Dow, falling 1.6
percent to $124.40.
On Nasdaq, shares of Google <GOOG.O>, the Web search
company, fell 2.3 percent to $498.47.
(Additional reporting by Ellis Mnyandu; Editing by Jan
Paschal)
