Wall St set to drop on credit woes, oil : US Business

By Ellis Mnyandu

NEW YORK (Reuters) - Stock headed for a lower open on Thursday as fears of more credit losses in the financial sector rattled investors while shares of mortgage finance companies Fannie Mae and Freddie Mac slid anew.

A jump in oil prices also threatened to weigh on the stock market by curbing business and consumer spending.

The fears about financial stocks centered on major investment banks cutting the outlooks for other investment banks. They also forecast more write-downs at Wall Street firms, including Lehman Brothers and Goldman Sachs .

The other hurdle stemmed from worries about the viability of U.S. home finance providers Fannie Mae and Freddie Mac, whose shares fell 9 percent and 10.2 percent, respectively, before the bell.

"Today you have the lowering of estimates on a group of financials and that definitely hurts. The other factor is that oil is up this morning," said Matt McCall, president of Penn Financial Group based in Denver, Colorado. "So put those two together, it's tough for equities to move higher this morning."

S&P 500 futures fell 9.20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures declined 89 points and Nasdaq 100 futures slid 16.75 points.

Fannie and Freddie are viewed by many as critical pillars of the U.S. housing market.

A recovery in oil prices back above $118 a barrel threatened to hamper the market, even though the bounce could boost shares of energy companies.

Worry about the financial sector had markets under pressure in Asia overnight, and drove losses in Europe on Thursday.

Citigroup analyst Prashant Bhatia widened his third-quarter loss estimate for Lehman Brothers. In addition, Bhatia and Lehman Brothers analyst Roger Freeman cut their third-quarter earnings estimates for Goldman Sachs and Morgan Stanley .

Bhatia projected Lehman to take an additional $2.9 billion of write-downs in the third quarter. He expects $1.8 billion of writedowns at Goldman and $1.7 billion at Morgan Stanley.

Shares of Lehman were down 4.8 percent to $13.10 before the bell as investors worried about how the investment bank will raise capital. U.S. front-month crude jumped $3 to $118.55 a barrel as the dollar pulled back sharply from this week's eight-month highs versus a basket of currencies.

Futures briefly pared losses following a report that showed the number of people filing for jobless benefits fell for the second week in a row last week. That spur was short-lived, however.

A reading of business activity in the U.S. Mid-Atlantic region is due at 10 a.m. (1400 GMT).

(Editing by Kenneth Barry)

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