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Stocks Slide as Financial Woes Persist

Oil prices are falling, but that's not enough to overcome worries about Fannie Mae and Freddie Mac.

Updated from 10:48 a.m. EDT

Stocks in the U.S. were slumping Monday as anxiety about the financial-services sector sent the major averages lower even as the price of oil declined.

The

Dow Jones Industrial Average

was down 121 points to 11,539, and the

S&P 500

was off 11 points at 1287. The

Nasdaq

was falling 22 points to 2431.

Stoking investor angst was a

Barron's

article saying the government will probably have to help troubled mortgage companies

Fannie Mae

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and

Freddie Mac

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raise fresh capital at the expense of taxpayers and shareholders. Both stocks led the financial sector lower, each losing more than 10%.

"For the first time, with oil flat to down, the financials have rolled," said Steven Kroll Sr., managing director at Monness Crespi & Hardt. He said the article detailing further risks for Fannie and Freddie indicates that the problems in the financials have not been fixed yet. "I expect the market, the financials, to correct here for several weeks."

As for the dollar, Kroll said the recent rally is over, and he suspects that continued problems in the credit markets will spur the Federal Reserve to cut interest rates rather than raise them.

The Wall Street Journal

also reported that brokerage

Lehman Brothers

(LEH)

could stand to lose $1.8 billion in the third quarter, adding further pressure to CEO Richard Fuld and raising the prospects that the company would need to raise more than the $6 billion in capital it amassed in June.

Meanwhile, Japanese bank

Mitsubishi UFG

has inked an agreement to buy California regional bank

TheStreet Recommends

UnionBanCal

(UB)

. Mitsubishi already owns 65% of UnionBanCal shares and will pay $3.5 billion for the remainder. UnionBanCal is noted for having sidestepped the worst of the housing crisis.

In the technology sphere, telecom service provider

Qwest

(Q)

reached a potential accord with two of its labor unions, Communications Workers of America and the International Brotherhood of Electrical Workers.

Elsewhere, video games developer

Electronic Arts

(ERTS)

announced it would not extend the deadline on its $2 billion buyout offer for

Take-Two Interactive

(TTWO) - Get Take-Two Interactive Software, Inc. Report

. Electronic Arts agreed to meet with Take-Two's management, raising the possibility of a friendly acquisition. Take-Two shares were edging downward.

In the consumer goods area, candy maker

Hershey

(HSY) - Get Hershey Company (HSY) Report

announced it would increase prices in an effort to preserve profit margins. Citigroup downgraded the stock to hold from buy, citing limited earnings visibility going forward.

As for earnings, mining company

BHP Billiton

(BHP) - Get BHP Group Ltd Sponsored ADR Report

announced rising full-year profit and raised its dividend. Retailer

Lowe's

(LOW) - Get Lowe's Companies, Inc. (LOW) Report

announced a year-over-year slump in income but nonetheless bested the Street's estimates.

In the commodities space, crude oil was dropping $1.01 to $112.76. Gold was up $9.10 to $801.20.

Despite the decline in oil, the dollar was beginning to soften after a week of solid gains against its major foreign counterparts. Treasury securities were gaining. The 10-year was up 6/32, yielding 3.81%, and the 30-year was adding 16/32 to yield 4.43%.

On foreign trading floors, the action was mixed. The FTSE in London and the DAX in Frankfurt were each losing ground. In Asia, Tokyo's Nikkei was up, while the Hang Seng in Hong Kong was trading lower.