* Wall Street has worst day since September 2001
* Lehman Brothers files for bankruptcy
* Bank of America buys Merrill Lynch
* AIG shares off over 60 pct on capital fears
* Dow off 4.4 pct, S&P down 4.7 pct, Nasdaq off 3.6 pct
(Updates to close)
By Kristina Cooke
NEW YORK, Sept 15 (Reuters) - Wall Street had its worst
day since markets reopened after the September 11 attacks onMonday as fears about the U.S. financial system's stability
surged after Lehman Brothers filed for bankruptcy and insurer
AIG struggled for survival.
The day followed one of Wall Street's most agonizing
weekends ever, which saw the demise of Lehman Brothers and
forced Merrill Lynch <MER.N> to accept a takeover by Bank of
America Corp <BAC.N>.
But Sunday's barrage of shocking news was no exorcism for
anxious investors and traders. As concerns about AIG's
scramble for capital mounted, the Wall Street Journal reported
that the U.S. government has asked Goldman Sachs <GS.N> and
JPMorgan Chase <JPM.N> to lead a lending facility of $70
billion to $75 billion for the insurer.
Financial services companies' shares led a broad and steep
decline in major indexes as investors worried about the impact
of the latest twists in the credit crisis on the economy and
the outlook for profits.
"The turmoil continues," said Robert Francello, head of
equity trading for Apex Capital, a San Francisco hedge fund.
"And it seems to be people underestimated the impact of
AIG and what the fallout of that could be."
The benchmark Standard & Poor's 500 index <.SPX> fell 59.00points, or 4.71 percent, to 1,192.70 -- posting its biggest
drop since the day that markets reopened after the September
11 attacks in 2001.
The S&P 500 also tumbled to its lowest close since October
2005, taking out a key technical support level as it fell.
The Dow Jones industrial average <> slid 504.48
points, or 4.42 percent, to 10,917.51 -- its biggest one-day
point drop since September 2001.
The Nasdaq Composite Index <> dropped 81.36 points, or
3.60 percent, to 2,179.91.
Lehman, weighed down by losses spawned by the U.S.
mortgage crisis, sought bankruptcy protection on Monday
following a scramble over the weekend in which it failed to
find a buyer. For more see [].
Merrill Lynch <MER.N>, meanwhile, agreed to be bought by
Bank of America Corp <BAC.N>, the No. 2 U.S. bank. Merrill's
stock closed just 0.1 percent higher at $17.06, but Bank of
America's shares dropped 21.3 percent to $26.55.
"There's some concern they (Bank of America) might have
bit off more than they could chew," said Marc Pado, U.S.
market strategist at Cantor Fitzgerald & Co in San Francisco.
Shares of Wall Street firms such as Goldman Sachs <GS.N>
and Morgan Stanley <MS.N> also slid on concerns about the
viability of their business models, which are similar to those
of Lehman Brothers and Bear Stearns, analysts said.
Goldman Sachs shares fell 12.1 percent to $135.50, while
Morgan Stanley shares dropped 13.5 percent to $32.19.
The concern was heightened due to the U.S. government's
decision not to provide guarantees for any deal to help Lehman
avert bankruptcy.
The S&P financial index <.GSPF> tumbled 10.6 percent.
Savings and loan Washington Mutual <WM.N> fell 26.7
percent to $2, while Wachovia Corp <WB.N> shares dropped 25
percent to $10.71.
A sharp slide in oil prices to below $100 a barrel helped
cap the stock market's losses a bit by boosting airlines and
retailers, which are particularly sensitive to higher fuel
costs, analysts said. U.S. crude <CLc1> fell $5.47 to settle
at $95.71 a barrel on the New York Mercantile Exchange. The
S&P energy index <.GSPE> lost 6.9 percent.
(Additional reporting by Ellis Mnyandu; Editing by Jan
Paschal)
