Stock Market Undid Itself, Giving Up All Yesterday’s Gains

Yesterday, financial stocks led a broad rally after the government’s effort to support the mortgage market by bailing out mortgage giants Fannie Mae and Freddie Mac.

Today, however, all the gains from yesterday were gone and the Wall Street was again dominated by fears of the financial sector. This time it’s Lehman Brothers (LEH)that brought down the stock market. Lehman, the fourth largest U.S. investment bank, has written down $8.2 billion since the credit crisis began and its survival was in doubt after the collapse of Bear Sterns in March. To boost its capital, the bank was recently in talk with Korean Development Bank to sell a stake, but the negotiation ended without a deal, prompting a 45% sell-off of Lehman shares today. At $7.97 a share, the stock is at its lowest level since 1998. At the close of today’s trading, the Dow gave back 280 of 290 points it gained yesterday. It’s even worse for the NASDAQ and the S&P 500, losing 2.6% and 3.4%, respectively.

The Fed has bailed out Bear Sterns, Fannie Mae and Freddie Mac. Will Lehman be the next in line to be rescued?

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