By Nick Edwards
NEW YORK, Sept 14 (Reuters) - U.S. asset prices sank late
Sunday as talks to sell Lehman Brothers <LEH.N> faltered, with
the first official transactions of a new business week pushing
stock market futures sharply lower in New York and the U.S.
dollar sinking in the opening salvos of currency dealing in New
Zealand.
"It appears that Lehman will file for bankruptcy and the
risk of an immediate tsunami is related to the unwind of
derivative and swap-related positions worldwide in the dealer,
hedge fund, and buyside universe," Bill Gross, the chief
investment officer of Pacific Investment Management Co (Pimco),
told Reuters. Pimco oversees more than $812 billion in assets.
U.S. stock futures pointed to a steep opening fall on Wall
Street on Monday, with uncertainty about the health of the U.S.
financial sector running high, the fate of the 158-year old
investment bank Lehman Brothers still unclear. In addition, a
takeover of Merrill Lynch & Co <MER.N> and huge asset sales by
American International Group <AIG.N> were being talked about in
markets [].
S&P 500 futures <SPc2> fell 38 points and the Dow Jones
industrial average futures <DJc2> sank 307 points, while Nasdaq
100 <NDc2> futures slid 45 points.
The U.S. dollar fell around a cent versus the euro in
opening trade in Sydney and was quoted around to $1.4300 <EUR=>
at 2300 GMT, compared with $1.4225 in late U.S. trade on
Friday. Againt the yen, the greenback dropped to 105.93/95 yen
<JPY=> versus 107.86 yen and the Australian dollar extended
gains above U.S. 80 cents <AUD=>.
On Sunday, a rare emergency trading session opened in New
York to allow Wall Street dealers in the $455 trillion
derivatives market to reduce their exposure to a potential
bankruptcy filing by Lehman.
U.S. regulators and bankers were making last-ditch efforts
on Sunday to prevent toxic assets from ailing Lehman Brothers
spilling into global markets and rupturing investor faith in
the international financial system. []
"The extraordinary trading session held today to
facilitate a partial unwind of these positions saw very little
trading -- perhaps $1 billion total -- but at much wider
spread levels for corporate bonds," Gross said.
While the fate of the U.S. financial system was the focus
of most early trading, initial reports that the passing of
Hurricane Ike through country's energy production centre had
not severely damaged infrastructure in Texas saw benchmark oil
prices fall more than to $2 to a six-month low below $99 a
barrel.
"The oil market is selling off because the early
indications show Ike didn't do as much damage as feared," said
Chris Jarvis, senior analyst at Caprock Risk Management. "That
said, this sell-off could prove to be a bit premature, since it
could be a while before things get back to normal."
The U.S. Coast Guard said it had received reports of damage
to offshore facilities in the Gulf of Mexico, but added details
were still not available. []
The U.S. government said on Sunday it loaned a total of
309,000 barrels of strategic crude to two oil refiners having
trouble procuring supplies in the storm's wake [],
ConocoPhillips and Placid Oil.
Oil <CLc1> fell $2.38 to $98.80 a barrel by 2150 GMT after
falling as low as $98.46 -- the lowest since February 26 --
adding to a steady downtrend prices since mid-July's peak of
over $147 a barrel as evidence mounts that high energy costs
and a weakening economy are cutting deeply into fuel
consumption.
SPECIAL TRADING SESSIONS
The New York Mercantile Exchange opened a special energy
trading session on Sunday due to increased trader interest
about Hurricane Ike, which slammed into the Houston energy hub
Saturday leaving a quarter of U.S. oil and refined fuel
production idled and millions without power.
But it was the special trading session opened for financial
derivatives dealers that sources said was initiated by the U.S.
Federal Reserve, that set the wider tone for asset markets.
Trading involved credit, equity, rates, foreign exchange
and commodity derivatives with the aim of reducing risk
associated with a potential bankruptcy filing by Lehman
Brothers Holdings Inc.
"Trades are contingent on a bankruptcy filing at or before
11:59 p.m. New York time Sunday (0359 GMT)," said the
statement. "If there is no filing, the trades cease to exist."
Britain's Barclays Plc <BARC.L>, which had appeared to be
the frontrunner to take over Lehman -- excluding its bad
mortgage-related assets -- pulled out of the bidding early in
the afternoon, according to a person familiar with the matter.
That raised the risk of a Lehman bankruptcy. Lehman hired
law firm Weil Gotshal & Manges to prepare a potential
bankruptcy filing, the Wall Street Journal reported on Saturday
in its online edition, citing a person familiar with the
matter.
A turbulent open on U.S. financial markets was expected
despite the special session, said Mark Grant, managing director
of structured finance at Southwest Securities, based in
Dallas.
"The market is going to be spooked. People will be fearful
and no one outside a very small group of people knows what
Lehman going into liquidation will mean," he told Reuters.
