Financial jitters send markets skidding

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 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.

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.

Oil prices declined slightly after briefly jumping above $115 per barrel as Tropical Storm Fay approached Florida, but appeared unlikely to disrupt installations in the Gulf of Mexico. Light, sweet crude fell 90 cents to settle at $112.87 a barrel on the New York Mercantile Exchange, after rising as high as $115.35.

Crude's retreat — down more than $35 from its record high of $147.27 set July 11 — has given the stock market a boost over the past month. But Wall Street has generally backtracked from its rallies amid continuing signs of problems among financial companies and also on unexpected signs of weakness in the economy.

Bonds rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.82 percent from 3.84 percent late Friday.

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