* Lehman files for bankruptcy protection
* Merrill Lynch agrees to buyout by Bank of America
* Investors are nervous about stability of other firms
* Dow off 2 pct, S&P 500 down 1.8 pct, Nasdaq off 1.3 pct
(Updates to late morning)
By Ellis Mnyandu
NEW YORK, Sept 15 (Reuters) - U.S. stocks fell on Monday as
a bankruptcy filing by U.S. investment bank Lehman Brothers
Holdings Inc <LEH.N> and cascading fears about the stability of
other major financial institutions spooked global markets.
Even so, a sharp drop in oil prices helped indexes pare
some losses by late morning as shares of airlines and other
transportation companies headed higher. A transportation index
<.DJT> was up 0.05 percent.
FedEx Corp <FDX.N> was up 1.3 percent, while Delta Air
Lines <DAL.N> climbed 3.8 percent.
Lower oil prices help ease spending strains on businesses
and consumers, and so shares of retailers and technology
companies headed higher. Internet retailer Amazon.com <AMZN.O>
rose 0.9 percent.
Even so, financial sector shares remained under water as
investors fretted about the health of other major financial
services companies.
Insurer American International Group <AIG.N> and savings
and loan company Washington Mutual <WM.N> are among other major
companies which investors fear are threatened by the year-long
credit maelstrom and that may have to step up efforts to raise
capital to shore up their balance sheets.
"It's now a matter of what's next," said Edward Craig,
managing director and head of U.S. cash equities trading at
Jefferies & Co in New York.
"I think as you could see the market was down sharply,
rightfully so earlier. As long as the liquidation occurs in an
orderly manner that's an efficient market. There's always
winners and losers. Unfortunately Lehman was the loser."
The Dow Jones industrial average <> fell 229.04 points,
or 2.01 percent, to 11,192.95. The Standard & Poor's 500 Index
<.SPX> shed 22.63 points, or 1.81 percent, to 1,229.07. The
Nasdaq Composite Index <> lost 28.53 points, or 1.26
percent, to 2,232.74.
AIG shares tumbled 46.5 percent to $6.49 on the New York
Stock Exchange, while those of Lehman plummeted 95 percent to
19 cents in composite trading. Washington Mutual dropped 19.4
percent to $2.20.
Heightened concern about the stability of other Wall Street
firms followed the U.S. government's decision not to provide
guarantees for any deal to help Lehman avert bankruptcy.
The S&P financial index <.GSPF> was down 3.2 percent.
Lehman, weighed down by losses spawned by the U.S. mortgage
crisis, sought bankruptcy protection on Monday following a
failed scramble over the weekend to find a buyer. For more see
[].
But while Lehman ended up with no option but to file for
bankruptcy protection, Merrill Lynch <MER.N>, whose outlook has
also come under scrutiny, agreed to be bought by Bank of
America <BAC.N>, the No. 2 U.S. bank.
Merrill shares climbed 26.6 percent to $21.58, but bank of
America shares dropped 13.9 percent to $29.05.
U.S. crude <CLc1> fell $4.62 to $96.56 a barrel on the New
York Mercantile Exchange. The S&P energy index <.GSPE> fell 2.6
percent.
(Additional reporting by Steven C. Johnson; Editing by James
Dalgleish)
