NEW YORK — Stocks tumbled Tuesday, nearly erasing the previous session’s big gains, after fresh concerns about the stability of Lehman Brothers Holdings Inc. punctured a sense of optimism about the financial sector. Each of the major indexes lost more than 2 percent. The Dow Jones industrials fell 280 points.
Meanwhile, bond prices jumped as investors sought the safety of government debt.
Wall Street’s pullback came one day after the biggest single-session rally in a month in the Dow, so some retrenchment was to be expected. Investors had been hopeful about the financial sector after the Treasury Department announced Sunday it would seize control of mortgage-finance companies Fannie Mae and Freddie Mac in an effort to help stabilize the troubled housing market.
But worries over the fate of Lehman rattled investors and sent the shares of the No. 4 U.S. investment bank down nearly 50 percent. Wall Street is concerned that the bank is having trouble finding new sources of capital, with a possible investment from South Korea’s government-owned Korea Development Bank in doubt.
Lehman said late Tuesday it will unveil a set of “key strategic initiatives” early today as it faces down investor concerns that it’s running out of options.
Many financial companies, including Lehman, have struggled with souring mortgage debt on their books and have looked to outside sources of funding.
“We’re back to the fundamentals again,” said Denis Amato, chief investment officer at Ancora Advisors in Cleveland, referring to investors’ mentality a day after sending stocks higher.
The Dow fell 280.01, or 2.43 percent, to 11,230.73. Broader indexes also fell. The Standard & Poor’s 500 index declined 43.28, or 3.41 percent, to 1,224.51, and the Nasdaq composite index fell 59.95, or 2.64 percent, to 2,209.81.
