NEW YORK - Stocks fell sharply for a second straight day yesterday as investors grew more worried that the financial sector is still suffering from the credit crisis. The Dow Jones industrial average dropped more than 100 points, bringing its two-day loss to 235.
Reports that Lehman Bros. Holdings Inc. planned to raise $4 billion in capital later expanded into a rumor on trading desks that the investment bank had approached the Federal Reserve to borrow money.
Lehman treasurer Paolo Tonucci quickly refuted the speculation, but the damage had already been done. Lehman dropped as much as 14.5 percent and dragged down other banks and brokerages and, ultimately, the rest of the market.
The Dow fell 100.97, or 0.81 percent, to 12,402.85. The Standard & Poor's 500 index dropped 8.02, or 0.58 percent, to 1,377.65, while the Nasdaq composite index fell 11.05, or 0.44 percent, to 2,480.48.
Early in the session, comments from Federal Reserve Chairman Ben S. Bernanke seemed to support the market. In a speech via satellite to a conference in Barcelona, Spain, the Fed chief reiterated expectations that the economy would rebound during the second half because of interest-rate cuts, Fed loans to banks, and tax rebates.
But he also said the economy faced headwinds with rising prices for food and energy - a signal that interest rates would remain on hold.
Light, sweet crude for July delivery fell $3.45 to settle at $124.31 a barrel on the New York Mercantile Exchange.
Bernanke's comments set off sharp reactions across other markets. The biggest response came in the dollar, which rallied after Bernanke said he would remain "attentive" to the sagging currency because of its impact on inflation.
Investor concern emerged from auto-sales statistics released during the session. Ford Motor Co. said May U.S. sales fell 16 percent compared with last year, while General Motors Corp. said sales were down 28 percent, in part because of strikes at a supplier and at several GM plants.
Rick Wagoner, GM's chairman and chief executive officer, said the company planned to halt production at four North American plants and was considering a sale of its Hummer brand. Wagoner said that high oil prices had altered consumer behavior and that he believed it was a permanent shift. GM gained 14 cents to close at $17.58, while Ford rose 4 cents to close at $6.68.