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Updated from 3:25 p.m. EDT

Stocks on Wall Street took a heavy beating Tuesday as anxious traders dealt a substantial blow to

Lehman Brothers

( LEH) shares.


Dow Jones Industrial Average

tumbled 280.01 points, or 2.4%, to 11,230.73, and the

S&P 500

dropped 43.28 points, or 3.4%, to 1,226.51. The


fell 59.95 points, or 2.6%, to 2,209.81.

Before trading got underway,

Dow Jones Newswires

reported that South Korea Development Bank, which had been rumored ready to buy a stake in Lehman, had ended talks with the struggling brokerage. A later


report cast doubt on the early news, but both news outlets are now reporting that talks between Lehman and KDB did in fact end.


Lehman explored its options

, shares of the company traded down 45% to $7.79.

"The financials are weak," said Ted Weisberg, floor trader at Seaport Securities. "I don't know if there's any specific news; I only know what I read in the paper." He said that much of the headline news concerning Lehman is conjecture and talk.

"There continues to be no tolerance for negative rhetoric, no matter what the source," said Weisberg. "Nothing seems to work, and whatever happens seems to have a 24-hour life cycle at best, and

then we're back to the underlying trend, which seems to be neutral at best."

"See if they have another working weekend at Treasury this weekend," said Dirk Van Dijk, director of research at Zacks Equity Research. "This doesn't look like a pretty situation with Lehman or




Downey Savings and Loan



Van Dijk said that the government bailout of

Fannie Mae

( FNM) and

Freddie Mac


over the weekend was probably necessary, but investors should not pretend it was a good thing. "Anybody who thinks we're totally out of the woods because of this was ... delusional," said Van Dijk, who foresees more pain for financial-services companies as the housing market and global economy continue to deteriorate.

Also suffering from investor skepticism was Dow component



. The insurance giant fell 19% to $18.37 on concerns about its exposure to mortgage-related assets.

Market analysts' revisions on some stocks' ratings were reflecting the negative sentiment. Stifel Nicolaus downgraded banking companies

TCF Financial





to hold from buy and to sell from hold, respectively.



also took a hit from Merrill Lynch, which cut the bank to underperform from neutral. TCF dropped 6.3% to $17.59, BB&T gave back 6.7% to $31.99 and Wachovia lost 14% to $16.24.

Merrill also took consumer conglomerate

Procter & Gamble


down a peg, to neutral from outperform, saying the stock trades at an unjustified premium. Shares slumped 0.7% to $71.89.


Pulte Homes



KB Home


both got downgraded at Credit Suisse to neutral from outperform. Pulte fell 8.9% to $14.77, and KB slipped 9% to $21.42.

Meanwhile, mining company



reported that full-year profit rose 32% from a year ago. The company also said it expects continued growth in the year ahead. Shares dropped 13% to $40.94.

Marius Kloppers, CEO of fellow miner

BHP Billiton


, said that slowing global demand for commodities will bring shareholders of

Rio Tinto

( RTP) to support BHP's hostile bid for the company. BHP shed 8.7% to $54.45, and Rio Tinto sank 8.1% to $288.47.

Elsewhere, fast-food colossus



announced that its

August same-store sales rose 8.5%

, up from an 8.1% increase a year ago. Shares climbed 1.2% to $63.19.

In the technology space, a

regulatory filing showed Michael Dell

, CEO of PC maker



, bought $100 million in the company's stock last week. The stock nevertheless lost 4.3% to $19.30.

As for economic data, the National Association of Realtors' pending-home sales figures showed a 3.2% contraction in July to an index reading of 86.5, a greater decline than was expected by economists. The Census Bureau reported that wholesale inventories in July rose to 1.4% from 0.9% in June. Analysts were predicting an increase of 0.7%.

Looking at commodities, the price of crude oil was down $3.08 to close at $103.26 a barrel. Prices fell after forecasts indicated Hurricane Ike would miss key Gulf Coast production facilities. Ali al-Naimi, Saudi Arabia's oil minister, and Rafael Ramirez, energy and oil minister of Venezuela, both signaled that OPEC would keep oil production at its current pace.

Prices of longer-dated U.S. Treasury securities were rising. The 10-year was up 23/32 to yield 3.59%, and the 30-year was adding 1-14/32, yielding 4.18%. The dollar was softening against the euro, yen and pound. Gold lost $10.50 to settle at $792.

Overseas, European indices, such as London's FTSE and Frankfurt's Dax, were mainly trading lower. In Asia, the Nikkei in Japan and the Hang Seng in Hong Kong likewise lost ground.