* U.S. financial stocks fall on Lehman-related worries
* Higher oil drives up energy shares
* Dollar rally stalls as oil settles at $101.18
* Gold prices gain 2 pct
(Updates prices)
By Nick Edwards
NEW YORK, Sept 12 (Reuters) - Investors focused on the
future of investment bank Lehman Brothers on Friday, weighing
heavily on financial shares on Friday in a volatile day on Wall
Street, but stocks finished mostly higher as prices for oil and
other commodities rose.
Oil prices inched higher as Hurricane Ike headed for the
Texas Gulf Coast and threatened U.S. crude oil and refinery
production.
Investors, meanwhile, pared back dollar exposure over a
weekend set to be pivotal to Lehman's <LEH.N> future, driving
the euro to session highs. Data showing a second straight month
of declines in U.S. retail sales also weighed on the dollar.
Spot gold <XAU=> gained 2 percent as the dollar declined,
with the yellow metal's rally leading precious metals prices
higher across the board [] while U.S. Treasury
bonds traded mostly lower as stocks pared early losses, sapping
safe-haven bidding for government debt.
Concern that Lehman Brothers Holdings Inc may fail to find
a buyer because the U.S. government is reluctant to provide
financial backing sent the investment bank's shares tumbling to
a nearly 14-year low.
Lehman's bonds also dropped ahead of what is expected to be
a series of frantic calls this weekend between Lehman, U.S.
regulators and potential bidders. Bank of America Corp <BAC.N>
is widely seen as a leading contender, with British bank
Barclays Plc <BARC.L> also cited as a possibility.
"Lehman is a proxy for the U.S. markets to some extent,"
said Jim Fehrenbach, head of Nasdaq trading at Piper Jaffray in
Minneapolis. "Where Lehman goes so will the market in the short
term."
The Dow Jones industrial average <> closed down 11.72
points, or 0.10 percent, at 11,421.99. The Standard & Poor's
500 Index <.SPX> was up 2.65 points, or 0.21 percent, at
1,251.70. The Nasdaq Composite Index <> ended up 3.05
points, or 0.14 percent, at 2,261.27.
The S&P index of financial shares <.GSPF> was down 1.06
percent.
American International Group <AIG.N>, the world's largest
insurer, was the biggest drag on both the Dow and the S&P amid
concerns that losses from mortgage debt will require it to
raise new capital. Shares of AIG were down almost 31 percent at
$12.14.
General Electric <GE.N> sagged 5 percent to $26.75 on
worries that the turmoil in the financial sector would take a
toll on the conglomerate, whose businesses include a finance
arm and commercial real estate interests.
The energy sector, meanwhile, was a bright spot as oil
prices rose. An index on energy stocks was firmer and shares of
Exxon Mobil <XOM.N> rose 2.6 percent at $77.50.
U.S. crude futures <CLc1> settled 31 cents higher in New
York $101.18 a barrel, prompted by Hurricane Ike's threat to
U.S. oil facilities, after a day of see-saw trading that saw
prices dip briefly below $100 a barrel for the first time since
April 2.
Earlier optimism in stock markets elsewhere in the world
over a possible rescue of the 158-year-old Lehman Brothers
lifted the MSCI main world equity index <.MIWD00000PUS> 1.25
percent to 318.80. The FTSEurofirst 300 <> index of top
European shares ended up 1.88 percent, snapping a three-session
losing streak as higher metals prices sparked a strong rally in
mining shares and energy stocks gained with oil prices..
In currency trade, the dollar was down against a basket of
major trading-partner currencies, with the U.S. Dollar Index
<.DXY> down 1.01 percent at 79.017 from a previous session
close of 79.822.
The euro <EUR=> was up 1.16 percent at $1.4192 from a
previous session close of $1.4029. Against the Japanese yen,
the dollar <JPY=> was up 0.27 percent at 107.44 from a previous
session close of 107.15.
MARKETS IN THRALL TO LEHMAN
Bond markets were in thrall to the Lehman story,
overshadowing news that U.S. consumer confidence soared
unexpectedly to an eight-month high in September as lower fuel
prices soothed inflation fears and made Americans more hopeful
about the economy, the Reuters/University of Michigan Surveys
of Consumers showed. [].
Meanwhile a government report showed retail sales
unexpectedly fell in August, adding to concerns about the
impact of the housing slump and a faltering labor market on
household spending. [].
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 22/32, with the yield at 3.7262 percent. The 2-year U.S.
Treasury note <US2YT=RR> was up /32, with the yield at 2.219
percent. The 30-year U.S. Treasury bond <US30YT=RR> was down
53/32, with the yield at 4.3212 percent.
"Everybody is just keying off Lehman and the musings there
and what may occur or not occur over the weekend," says Marty
Mitchell, head of government bond trading at Stifel Nicolaus &
Co. in Baltimore.
Five-year Treasury notes <US5YT=RR> were trading 5/32 lower
in price for a yield of 2.97 percent from 2.93 percent late on
Thursday.
Comments by Eurogroup Chairman Jean-Claude Juncker saying
that Europe was not on the brink of a recession []
sucked the bid from safe-haven euro zone government bond
futures which <FGBLc1> dropped by 20 ticks.
Emerging shares <.MSCIEF> were 1 percent higher while
emerging sovereign debt spreads <11EMJ>, an indicator of risk
aversion, were 2 basis points wider.
Despite its dip versus the euro, both the dollar and the
<JPY=> remain firmly on track for solid gains this week,
fuelled by a general cutting of risk, unwinding of long-held
leveraged positions and falling commodity prices.
"Risk aversion remains elevated and the dollar should
continue to benefit as a safe-haven currency," UBS said in a
note to clients.
(Additional reporting by Sebastian Tong in London; Chris
Reese, Richard Leong and Ellis Mnyandu in New York; Editing by
Leslie Adler)
