Lehman Brothers ( LEH) sank 3% even as the firm tried to shoot down rumors about losses tied to the imploding subprime mortgage market.

The stock sank along with those of its Wall Street rivals Wednesday after an analyst downgraded the group to sell based on worries tied to the demise of two Bear Stearns ( BSC) hedge funds.

Adding to the selling pressure at New York-based Lehman was an unconfirmed rumor that the firm was about to announce a big subprime hit of its own. Lehman denied that chatter at midday, but its shares failed to lift.

"The rumors regarding subprime exposure are totally unfounded," a spokesman for Lehman said.

The spokesman said there will be no announcements made in any part of the firm regarding mortgage exposure.

Meanwhile, Lehman is combining its two non-prime residential mortgage businesses -- Aurora Loan Services of Littleton, Colo., which specializes in so-called Alt-A mortgages, and BNC Mortgage of Irvine, Calif., its subprime lender.

The company began laying off employees at BNC Mortgage last month.

The spokesman said the business combination is a "process that's continuing." Lehman plans to cut about 400 employees from BNC Mortgage.

For the time being, Lehman will continue to use both brand names.

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