Financial Winners & Losers: Lehman

Financial stocks rallied Tuesday as the Federal Reserve left its target interest rate unchanged.

The NYSE Financial Sector index jumped 266.33 to 6,649.22, as the Federal Open Markets Committee, as expected, held its target rate at 2%.

Among the big winners was Lehman Brothers(LEH Quote), which was rising 10.3% to $19.79 after CNBC reported that it was considering selling its entire investment management business. Previously it had been reported that Lehman was considering selling just its Neuberger Berman business.

Bond insurer Ambac(ABK Quote) was advancing 13.8% to $4.77, ahead of its earnings report on Wednesday. Analysts polled by Thomson Reuters expect the company to report a loss of 65 cents.

American International Group(AIG Quote) climbed 8.4% to $28.94 on an upgrade from UBS. The Swiss bank changed its rating to buy from neutral based on valuation. The stock has dropped 58% over the last 12 months.

Wachovia(WB Quote) shares also ticked up 9.3% to $18.70 after an RBC Capital Markets analyst wrote that he has a great deal of confidence in new CEO Robert Steel. Wachovia is struggling to find its way out of the mortgage crisis and Steel left the Treasury department in an effort to turn the bank around.

Financial services provider Principal Financial Group(PFG Quote) shot up 9.6% to $46.01 after it reported second quarter profits that surpassed analyst forecasts. Principal suffered an $85 million loss on investments, but delivered an operating profit of $253.7 million.

On the flip side, Fortress Investment Group(FIG Quote) plunged 13.1% to $10.26 after a Citigroup analyst downgraded the stock. The rating was changed to sell from hold on concerns that fund performance would affect the capital raising efforts of the company. Flat to negative rates of return are expected at the fund.