Stocks sink as oil reapproaches high, BUD up late : US Business

By Jennifer Coogan

NEW YORK (Reuters) - Stocks sank on Wednesday, with all three indexes losing around 2 percent, after oil prices shot back near their record high, stoking fears about inflation and its toll on consumers.

More signs of trouble in the financial sector further soured the mood on Wall Street. The Financial Times said on Wednesday that Lehman Brothers may look to raise more capital, hammering shares of the investment bank. A spokesman for Lehman declined to comment. Lehman's stock has declined about 30 percent in four straight days of losses.

The Federal Reserve offered no comfort after its report on regional economic conditions said higher energy and commodity prices are being passed on to consumers in some areas, causing inflation pressures. The report, known as the "Beige book," also said economic activity was generally weak.

Oil futures jumped almost $7 to an intraday high above $138 a barrel, and settled at $136.38 a barrel.

"I think we have had our big move due to oil, (crude's) almost completely rebounded and right near the highs," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "That's brought back all those inflation worries."

The Dow Jones industrial average <.DJI> tumbled 205.99 points, or 1.68 percent, to 12,083.77. The Standard & Poor's 500 Index <.SPX> dropped 22.95 points, or 1.69 percent, to 1,335.49. The Nasdaq Composite Index <.IXIC> slid 54.93 points, or 2.24 percent, to 2,394.01.

Shares of Lehman Brothers lost 13.6 percent to $23.75, its lowest close since October 2002. Adding to the U.S. investment bank's woes, Merrill Lynch downgraded its rating on Lehman's shares to "neutral" from "buy" on Wednesday -- just a week after upgrading the stock.

Lehman rival Goldman Sachs declined 2.9 percent to $162.40. Goldman has been the sole major investment bank to avoid fallout from the subprime mortgage crisis, but traders said on Wednesday there was talk that it may have to write off bad loans. A Goldman Sachs spokesman said the company does not comment on market rumors.

The S&P financial subindex <.GSPF> fell 3.3 percent to end at 298.78 -- a 5-year low.

DELTA DIVES

Shares of energy-hungry companies, including airlines, took a beating. Delta Air Lines dropped 9.6 percent to $5.36 on the New York Stock Exchange, while package delivery service FedEx Corp slid 4 percent to $86.57, also on the NYSE.

Fuel worries also weighed on Nasdaq's transport components. Shares of YRC Worldwide Inc , North America's top trucker, tumbled 8.4 percent to $14.75 on the Nasdaq. The stock of freight forwarder Expeditors International lost 4.9 percent to $43.99 in Nasdaq trading.

Shares of retailers also fell, with Wal-Mart Stores Inc down almost 2.1 percent at $58.52.

Alcoa Inc was the top drag on the Dow, falling 8 percent to $39.32 after JPMorgan cut its rating on the aluminum producer's stock.

Confounding the day's downward trend was U.S. office supplies company Staples , whose shares rose 5.3 percent to $24.38 on the Nasdaq. Staples won its battle to buy Corporate Express after the Dutch office supplies firm agreed to a sweetened bid of $2.65 billion.

"BUD-RISE-ER"

Shares of Anheuser-Busch rose after the closing bell following the U.S. brewer's announcement that it received an unsolicited takeover bid from Belgian competitor InBev , the maker of Stella Artois and Beck's. Anheuser-Busch shares climbed 6.5 percent to $62.12 in extended-hours trading.

During the regular session, Anheuser-Busch shares gained $1.20, or 2.1 percent, to close at $58.35 on the NYSE. The company's flagship brand is Budweiser beer, or simply Bud -- a fact evoked by its NYSE stock symbol "BUD." Its TV commercials with "talking" frogs who croaked out their names -- Bud, Weis, Er -- became one of the most popular American TV ad campaigns after they made their debut during the Super Bowl in the mid-1990s.

Trading volume was modest on the New York Stock Exchange, with about 1.39 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.12 billion shares traded, below last year's daily average of 2.17 billion.

Declining stocks trounced advancing ones by more than 4 to 1 on the NYSE and by more than 3 to 1 on the Nasdaq.

(Reporting by Jennifer Coogan; Editing by Jan Paschal)

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