U.S. stocks fell for a second day as growing speculation that Lehman Brothers Holdings Inc. will be forced to raise more capital led a slump in financial shares and a drop in oil prices pushed down energy companies.
Lehman, the fourth-biggest U.S. securities firm, slid to its lowest level since August 2003 on concern it may report its first ever quarterly loss. Wachovia Corp., the fourth-largest U.S. bank, declined the most since April on a report billionaire investor Michael Price is betting the stock will drop. Exxon Mobil Corp. and Chevron Corp. led energy producers lower as crude retreated for the first time in three days.
The Standard & Poor's 500 Index declined 8.02 points, or 0.6 percent, to 1,377.65. The Dow Jones Industrial Average slipped 100.97, or 0.8 percent, 12,402.85. The Nasdaq Composite Index lost 11.05, or 0.4 percent, to 2,480.48. Seven stocks fell for every five that rose on the New York Stock Exchange.
``The concern over Lehman was a key factor that exacerbated the sell-off,'' Craig Hester, who oversees about $1.4 billion as president and chief executive officer of Hester Capital Management in Austin, Texas, said in an interview on Bloomberg Radio. ``The whole financial sector remains weak. It's a real challenging environment.''
Nine of 10 industry groups in the S&P 500 retreated, extending the index's drop this year to 6.2 percent. Benchmark indexes pared declines after Lehman denied speculation that it was forced to borrow money from the Federal Reserve.
Stocks opened higher after the government said demand for manufactured goods unexpectedly grew 1.1 percent in April and Federal Reserve Chairman Ben S. Bernanke predicted the economy will grow without boosting inflation.
Lehman's Plunge
Lehman dropped $3.22, or 9.5 percent, to $30.61 for the steepest decline in the S&P 500. The fourth-biggest U.S. securities firm may report its first quarterly loss since going public in 1994, increasing pressure on the company to raise more capital, according to analysts. Lehman may seek as much as $4 billion by selling common stock, the Wall Street Journal reported today, citing unidentified people with knowledge of the matter.
Lehman pared a decline of as much as 15 percent after the company said its cash holdings increased 18 percent in the second quarter and it denied speculation by some traders that it had accessed the Fed's borrowing facility.
Trading of Lehman put options, which give investors the right to sell shares of the company by a certain date, was more than quadruple the 20-day average. Puts exceeded calls by 1.6-to- 1. The most-active contracts were June $30 puts, which accounted for 14 percent of all Lehman put trading. They rose 68 percent to $3.35 and were among the 10 most-active options in U.S. trading.
`Selling First'
Lehman led declines in 17 of 29 stocks in the S&P 500 Diversified Financials Index as the measure of banks and brokerages slumped to its lowest level since March 17. The 24- member KBW Bank Index declined 1.3 percent to 73.55, a five-year low.
``Right now people are selling first and asking questions later when it comes not only to Lehman, but to the financials in general,'' Michael James, a managing director at Wedbush Morgan Securities in Los Angeles, said in an interview on Bloomberg Television.
Wachovia declined $1.48 to $21.92, the lowest close since April 1995. Price said the nation's fourth-biggest lender is likely to book much higher credit losses on its holdings of adjustable-rate mortgages and will have to raise more capital, the Wall Street Journal reported.
Bernanke Speaks
Bernanke said interest rates are ``well positioned'' to promote growth and stable prices, and policy makers are ``attentive'' to the impact of the falling dollar. The speech, his first on the economic outlook in two months, sparked a rally in the U.S. currency that sent oil prices lower.
Crude futures for July delivery declined 2.7 percent to settle at $124.31 a barrel in New York, the lowest since May 15. Exxon, the biggest U.S. oil company, dropped $2.10 to $85.71. Chevron, the second-largest, retreated $1.51 to $97.86. The S&P 500 Energy Index fell 1.8 percent to the lowest level since May 7.
Tyson Foods Inc. dropped $1.47, or 8 percent, to $16.98 for the second-biggest drop in the S&P 500. The second-largest U.S. poultry producer found a flock of breeder hens was exposed to a low-pathogen strain of avian influenza.
``Preliminary tests on the flock indicate the presence of antibodies for H7N3 avian influenza, however, there is no indication the birds currently have the virus,'' spokesman Gary Mickelson said in an e-mailed statement.
Boeing, Sherwin-Williams
Boeing Co. dropped $3.03 to $78.12. The world's second- largest commercial-aircraft maker and larger rival Airbus SAS may not produce new single-aisle aircraft until 2020 as they struggle to finish delayed widebodies, according to the International Lease Finance Corp., the biggest buyer of airliners.
Sherwin-Williams Co. retreated $1.16 to $54.53 after the largest U.S. paint retailer slashed its 2008 profit forecast because of a weak domestic housing market and rising costs for petroleum-derived raw materials.
Toll Brothers Inc., the largest U.S. luxury-home builder, climbed 3.1 percent to $21.60 after posting results that topped analysts' forecasts. Toll reported a net loss for the fiscal second quarter ended April 30 of $93.7 million, or 59 cents a share. The company was projected to report a loss of about 90 cents a share, according to the average estimate of 11 analysts in a Bloomberg survey.
Builders Rally
Toll's results sparked gains in all 15 homebuilders in S&P indexes, sending the group to a 3.9 percent advance, its steepest gain in more than a month.
Industrial companies in the S&P 500 advanced as much as 0.4 percent before erasing gains and dropping 0.7 percent as a group.
The 1.1 percent increase in factory demand followed a 1.5 percent gain in March that was higher than previously estimated, the Commerce Department said. Bookings excluding cars and airplanes climbed 2.6 percent for a second month. Increases in orders for machinery and electrical equipment signal demand from overseas is helping to keep some factories running as a weaker dollar has made American-made goods more attractive.
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