Wall Street pulls back as financials fall

NEW YORK — Wall Street retreated Monday after Fannie Mae and Freddie Mac fell to their lowest levels in nearly 20 years on concerns that the government might need to bail out the mortgage financiers. Weakness in the overall financial sector sent the Dow Jones industrial average down more than 175 points.

Investors were again uneasy about the health of financial companies after media reports of further problems in the sector. Barron's said the U.S. Treasury might have to bail out government-chartered Fannie and Freddie, which, the weekly noted, would likely wipe out shareholders' equity in the companies.

Meanwhile, The Wall Street Journal, citing unidentified sources, reported that Lehman Brothers Holdings Inc. might surprise Wall Street with weaker-than-expected third-quarter results.

The continuing bad news about financials wasn't a surprise, but it nonetheless depressed a market that is hoping for concrete signs that banks and brokerages can put the year-old credit crisis behind them and return to significant profit growth.

Even neutral news about the housing market couldn't ease Wall Street's mood. The National Association of Home Builders monthly index on the housing market remained flat at 16 in August. That met the expectations of economists surveyed by Thomson Financial/IFR. Benchmarks related to current sales and expectations of future sales improved, but apparently not enough to move investors to buy.

Todd Leone, managing director of equity trading at Cowen & Co., said the worries about Fannie and Freddie dominated market sentiment in an otherwise light day.

"It'll be one of the slowest days of the year and I think it just kind of fed into itself," he said, referring to the effects of very light volume and the unease over the mortgage companies.

According to preliminary calculations, the Dow Jones industrial average fell 180.51, or 1.55 percent, to 11,479.39. The Dow had been down about 225 points at its lows of the session.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 19.60, or 1.51 percent, to 1,278.60, and the Nasdaq composite index fell 35.54, or 1.45 percent, to 2,416.98.

Last week, the Dow finished lower, but the S&P and the Nasdaq composite index ended higher, with financial sector problems again helping to bring stocks down.

Fannie Mae shares fell $1.76, or 22 percent, to $6.15, and Freddie Mac fell $1.46, or 25 percent, to $4.39, after the Barron's report. The stocks traded at levels not seen since the early 1990s.

Lehman shares fell $1.14, or 7.1 percent, to $15.03, after the Journal's report.

UnionBanCal Corp. was one of the exceptions in the financial sector. Japanese bank Mitsubishi UFJ Financial Group Inc. raised its bid to buy the rest of UnionBanCal, the California bank that it partially owns, to $7.69 a share in a deal worth $3.5 billion. UnionBanCal shares rose $7.69, or 12 percent, to $73.18.

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