Stocks plummeted Tuesday, erasing most of the previous session's gains, as concerns about Lehman Brothers' ability to raise capital and the extent of AIG's mortgage-related loses intensified fears about a possible U.S. recession. Insurers and regional banks fell following the government rescue of mortgage-finance giants Fannie Mae and Freddie Mac, and declining oil prices added to worries about the slowing global economy. Shares of Lehman Brothers fell 45 percent on concerns that it will face difficulties raising capital now that talks with state-run Korea Development Bank have ended. Among other financial stocks falling, Washington Mutual lost 21 percent, Wachovia lost 13 percent, and Merrill Lynch lost 10 percent. In economic news, U.S. pending home sales fell 3.2 percent in July after rising the previous month, the National Association of Realtors reported. Meanwhile, federal officials warned Tuesday that the budget deficit will be substantially higher this year, rising $246 billion to $407 billion, reflecting the weak U.S. economy. Oil prices closed at a five-month low Tuesday on bets that OPEC, meeting in Vienna, will hold production levels steady despite the recent price slide. Also impacting prices were signs that Hurricane Ike is weakening and is less likely to cause severe damage to oil facilities in the Gulf of Mexico. Light sweet crude for October delivery fell $3.08 to $103.26 a barrel on the New York Mercantile Exchange. The U.S. dollar fell versus the euro and the yen. The Dow Jones industrial average fell 280.01, or 2.4 percent, to 11,230.73. Shares of insurance giant AIG fell 20 percent. Citigroup shares lost 7 percent, Bank of America lost 6 percent, and American Express and J.P. Morgan each lost 5 percent. McDonald's shares rose 1.6 percent on strong August sales at the fast-food chain. The broader Standard & Poor's 500 index fell 43.28, or 3.4 percent, to 1,224.51. The technology-heavy Nasdaq composite index fell 59.59, or 2.6 percent, to 2,209.81. Apple announced a new version of iTunes and new models of its iPods, but its shares fell. Dell founder Michael Dell bought $100 million in Dell shares last week, but shares of the computer maker fell in the afternoon. The New York Stock Exchange composite index fell 297.47 to 7,871.15. The American Stock Exchange composite index fell 54.28 to 1,867.28. And the Russell 2000 index fell 25.57 to 707.29.
