U.S. brokerage shares plunge as global markets decline

NEW YORK (Reuters) - Shares of U.S. investment banks and brokerages sank on Tuesday as global markets were swept into negative territory by a nearly 9 percent decline in China's main stock index and worries that the U.S. economy is slowing.

Goldman Sachs Group (GS.N) stock, which has soared 49 percent in the past year to become the largest investment bank in the world by market value, slid as much as 8.8 percent, marking the firm's biggest one-day percentage drop since September 17, 2001, the day the market reopened after the 9/11 attacks.

By late afternoon, the stock was down $12.86 or 6 percent, at $201.14.

Lazard Ltd. (LAZ.N), which specializes in selling merger and acquisitions advice, fell more than 5 percent during the day, after a 38 percent advance in the past year. Late in the session on Tuesday, the stock was down 3.98 percent, or $2.13, at $51.36.

Shares of investment bank Lehman Brothers Holdings LEH.N were down 4.45 percent, or $3.46, at $74.37 and Morgan Stanley(MS.N) shares were down 4.66 percent, or $3.66, at $74.86 in late afternoon trading. This was the fifth straight trading day of declines for these two firms.

"With the runs some of these stocks have had, that the overall equity market has had, there's a reason for the selling. We're probably due for a correction," said Sandler O'Neill & Partners analyst Jeff Harte.

The Dow Jones industrial average fell more than 500 points before cutting that loss as China's equity market sell-off fanned concerns about equity valuations there and a U.S. government report showed a bigger-than-expected decline in January's new orders for U.S.-made durable goods.

Harte noted other factors have weighed on Wall Street shares, which have been on a tear since 2003. Recently, troubles in the subprime mortgage lending market have raised questions about the outlook for mortgage underwriting and trading results.

China's Shanghai Composite Index dropped nearly 9 percent on fear the government would crack down on speculation that has helped send china stock prices to record highs. That contributed to broader worries about valuations in emerging markets.

"There are enough factors coming together to give investors a reason the pull the sell trigger," Harte said. "I think it's a correction, but it's a matter of how much more will they fall before things stabilize."

Brokerage stocks historically served as a proxy for the overall market and the economy, since trading and banking revenues increase when markets are growing. But the reverse also holds true, as falling prices can drive down trading and transaction activity.