Bear Stearns, lender shares fall on credit worries

NEW YORK (Reuters) - Shares of investment banks and lenders sank on Friday as a series of events stoked fears that a slowing U.S. housing market would lead to more mortgage losses and erode earnings.

Standard & Poor's changed its outlook on Bear Stearns Cos. BSC.N debt to "negative," which means the credit rating agency is more likely to cut Bear's ratings. Recent problems at hedge funds managed by Bear Stearns have the potential to hurt the company's performance for an "extended period," S&P said.

Meanwhile the cost to insure debt of Countrywide Financial Corp. CFC.N, the largest U.S. mortgage company, surged as investors fretted over the rising rate of late payments.

"There's continued nervousness about how credit market problems will effect these companies," said Richard Sichel, who helps manage $1.5 billion as chief investment officer at Philadelphia Trust Co. "They're worried that there might be more bad news ahead."

Bear Stearns shares, which already were down 24 percent over the past three months, fell 6 percent to their lowest since November 2005 in midday trade on the New York Stock Exchange.

At its session low, Bear Stearns suffered its biggest drop since September 17, 2001, the first day of trading after the 9/11 attacks on New York City.

CIT Group (CIT.N), a commercial and consumer lender that announced plans to exit the subprime lending business, saw its shares sink 7.7 percent to $35.67. Countrywide Financial stock fell 4.7 percent to $25.51, its lowest since January 2004.

Among the biggest losers on the NYSE was Fremont General FMT.N, a California thrift that agreed to sell its subprime mortgage business, whose shares sank 10 percent to $4.87.

Worries about credit also extended to credit card companies, on the theory that consumers struggling with mortgage payments also would fall behind on card debts.

Capital One Financial (COF.N) shares fell 3.9 percent to $68.45, while MasterCard (MA.N), which oversees a global card payment network, dropped 4.3 percent to $136.45.