Stocks Weighed Lower by Lehman Woes

Updated from 11:48 a.m. EDT

On a volatile day, stocks in the U.S. were lately lower following a mixed bag of reports about the fate of harried brokerage Lehman Brothers (LEH Quote).

The Dow Jones Industrial Average was down 103 points at 11,329, and the S&P 500 was down 7.8 points at 1241. The Nasdaq was off 15 points at 2242.

Traders have leveled an intense gaze at the financial sector this week following the government takeover of mortgage giants Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote). Throughout the week, investor jitters were evident in volatile price action in Lehman and Washington Mutual (WM Quote).

Following the market's close Thursday, The Wall Street Journal reported that Lehman was shopping itself to, among others, Bank of America (BAC Quote). The Journal and Reuters both listed British bank Barclays (BCS Quote) as another potential buyer. Both publications also said that the Treasury and Federal Reserve were offering counsel to Lehman as it explores its options. A solution to Lehman's recent woes could help restore confidence in U.S. financial markets.

Investors are on edge thanks to uncertainty about Lehman's fate, said Alan Gayle, senior investment strategist and director of asset allocation at RidgeWorth Capital Management. "In the absence of an announcement today, investors may want to go flat or minimize their exposure over the weekend," he said.

Gayle said a deal brokered without government funds would signal to the market that we're further along in stabilizing the credit markets and the banking system.

"Lehman will cease to be an independent entity," said Bill Fleckenstein, hedge fund manager at Fleckenstein Capital Management. He said that a shotgun marriage with another institution may be on the horizon, with or without backing by the Treasury or Federal Reserve. "They're gone," he said. "The only question is in what way are they gone and how much collateral damage is there from that goneness."