* U.S. stocks tumble as Lehman dive sparks financial fears
* Dollar cuts gains, turns lower as Lehman stock weighs
* Safety bid gives bonds a boost on both sides of Atlantic
* London crude drops below $100 a barrel, no OPEC cut seen
* Commodities slip to 7-1/2 month lows on financial unease
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 9 (Reuters) - U.S. stocks fell sharply on
Tuesday, pulled lower by energy shares reacting to a weakening
oil market and financial stocks hit by new worries over Lehman
Brothers.
Lehman fell on concern that talks on a possible investment
from Korea Development Bank had broken down and that the No. 4
U.S. investment bank would be unable to raise needed capital.
Lehman <LEH.N> fell 45 percent and reignited investors'
worries over the health of the banking sector, fueling demand
for safe-haven government debt.
The 3.4 percent slide in the broad Standard & Poor's 500
index was the biggest single day fall since February 2007.
Crude oil prices briefly slipped below $100 a barrel in
London for the first time in five months, and commodities
prices fell in unison despite a fall in the U.S. dollar.
"Whenever we see heightened uncertainty with any large
institution, risk aversion moves higher and traders just want
to get out of riskier asset classes," said Gareth Sylvester at
HiFX, a foreign exchange broker in San Francisco.
Big consumer and pharmaceutical stocks that will do well in
an economic downturn rose. Coca-Cola Co. <KO.N>, Amgen Inc
<AMGN.O>, McDonald's <MCD.N> and Pepsico Inc <PEP.N> were the
biggest gainers on the broad-based S&P 500 index.
Lehman's slide to record lows below $8 a share helped wipe
out recent optimism over the U.S. government's bailout of
mortgage finance companies Fannie Mae <FNM.N> and Freddie Mac
<FRE.N> that was announced on Sunday.
"The No. 1 issue today is Lehman. Everybody is starting to
ask whether Lehman will be able to raise capital and survive,"
said Hugh Johnson, chief investment officer of Johnson
Illington Advisors in Albany, New York.
Shares of energy shares fell in sync with a drop in crude
prices. Exxon Mobil <XOM.N> was the top drag on the S&P 500.
The Dow Jones industrial average <> closed down 279.68 points, or 2.43 percent, at 11,231.06. The Standard & Poor's
500 Index <.SPX> fell 43.25 points, or 3.41 percent, at
1,224.54. The Nasdaq Composite Index <> skidded 59.95
points, or 2.64 percent, at 2,209.81.
European shares fell as mining stocks lost ground amid
renewed worries about economic growth and energy stocks fell on
the oil's decline.
The FTSEurofirst 300 <> index of top European shares
closed 0.6 percent lower at 1,155.58 points, after rising 3.3
percent on Monday.
Miners, steel producers and energy companies were among the
biggest losers after renewed economic growth worries.
The basic resources sector <.SXPP>, which includes miners,
slumped 5 percent as copper prices fell to a 7-1/2 month low.
Miners Anglo American <AAL.L> lost 6 percent, BHP Billiton
<BLT.L> 5.4 percent and Rio Tinto <RIO.L> 5 percent.
Financials in Europe were mixed after Monday's sharp rally
triggered by the Fannie and Freddie takeovers.
Euro zone and U.S. government bond prices rose.
The December Bund future <FGBZ8> rose 35 ticks after
hitting a session high of 115.14 in late trading.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
28/32, lowering the yield to 3.59 percent. The 30-year U.S.
Treasury bond <US30YT=RR> gained 50/32 to yield 4.18 percent.
Investors fretted over what the government bailout of
Fannie and Freddie means about the state of the U.S. economy.
"That flight-to-quality into Treasuries is an indication --
and the same with the Dow Jones being down -- that there are
going to be more questions develop from the Fannie and Freddie
situation," said William Larkin, fixed income portfolio manager
at Cabot Money Management in Salem, Massachusetts.
Oil fell on expectations the Organization of Petroleum
Exporting Countries would leave output targets unchanged and as
Hurricane Ike's threat to energy infrastructure in the U.S.
Gulf of Mexico receded.
London Brent <LCOc1> fell $4.54 to $99.04 a barrel -- the
first time world oil prices have traded in the double digits
since April 2 -- before trimming losses to settle down $3.10 to
$100.34 a barrel.
The U.S. benchmark <CLc1> fell $3.08 to settle at $103.26 a
barrel.
Copper slipped to a 7-1/2-month low and aluminum to a
seven-month trough as investors worried about demand,
especially from China, the world's top consumer of industrial
metals.
The dollar was little changed with major currencies, with
the U.S. Dollar Index <.DXY> at 79.525. Against the yen, the
dollar <JPY=> fell 1.12 percent at 107.10.
The euro <EUR=> fell 0.15 percent at $1.4105.
Spot gold prices <XAU=> fell $25 to $776.35 an ounce.
Gold fell as investors continued to take money out of
commodities following a broad rally in the U.S. dollar.
The sell-off spilled over into other precious metals, with
silver and platinum dropping to their lowest in a year.
Overnight in Asia, stocks retreated and government bonds
rose on the sobering realization the takeovers of Fannie and
Freddie Mac does not resolve the financial crisis.
Japan's Nikkei share average <> fell 1.8 percent and
Asia-Pacific stocks <.MIAPJ0000PUS> outside Japan shed 2.5
percent after their biggest daily gain of 2008 on Monday.
(Reporting by Ellis Mnyandu, Chris Reese, Lucia Mutikani,
Vivianne Rodrigues in New York; Jane Merriman, Matthew
Robinson, Jamie McGeever and Bate Felix in London and Peter
Starck in Frankfurt. Editing by Richard Satran)
(Writing by Herbert Lash)
