UPDATE 3-Credit crisis whips U.S. asset managers, stocks slide

(Recasts with State Street, Bank of New York statements)

By Muralikumar Anantharaman

BOSTON, Sept 18 (Reuters) - Fears of a growing U.S. financial crisis spread to State Street Corp (STT.N), Federated Investors Inc (FII.N) and other asset managers on Thursday, pummeling their stock prices on concern over mounting portfolio losses and fund redemptions.

Facing demands by investors to withdraw their money, Boston-based Putnam Investments said it shut a $12.3 billion money-market fund, adding to the nervousness over a credit crisis that is giving Wall Street its most dramatic transformation since the Great Depression.

"There are no safe havens right now," said Anthony Conroy, head trader for BNY Convergex, an affiliate of the Bank of New York Mellon.

U.S. asset managers were already on edge after the asset value of one of the oldest and biggest U.S. money-market funds slid on Tuesday below the amount investors had put into it.

News that shares of the Reserve Primary Fund, whose New York parent pioneered the money-market fund industry, were worth only 97 cents -- below the crucial $1-a-share threshold -- sparked a flight of cash from the traditionally safe $3.5-trillion money-market fund industry.

Shares of Boston-based State Street Corp (STT.N), one the world's biggest institutional money managers and a major custody bank, tumbled as much as 55 percent on concern over portfolio losses and fears it may need to raise fresh capital.

State Street responded by saying it does not have plans to raise new capital, had ample liquidity and that shares in its money-market funds had not fallen below $1.

The statement helped pare losses in its shares, which closed down 14 percent at $55.50 on the New York Stock Exchange.

Other asset managers and custody banks sought to reassure investors that they had little or no exposure to troubled U.S. financial firms such as Lehman Brothers Holdings Inc LEHMKQ.PKLEH.N, which filed for bankruptcy protection on Monday, or insurer American International Group (AIG.N).

The Bank of New York Mellon Corp (BK.N) said it had Lehman assets but that they were isolated in a fund in a separate structure. Its shares closed down 3 percent at $32.25, recovering after falling as much as 35 percent earlier.

"It's no different from what we're seeing in other financials: shoot first, and ask questions later. There is guilt by association," said Tom McCrohan, an analyst at Janney Montgomery Scott LLC.

Shares of Pittsburgh-based Federated Investors, a major player in the money-market funds business, fell as much as 43 percent before announcing that its money funds were operating normally. The news help trim losses and its stock closed down 11 percent at $27.10.

The battering in stock prices of asset managers, following the plunges in the shares of banks, suggested deepening anxiety on Wall Street despite the injection of $180 billion of extra liquidity by six major central banks into financial markets to calm panicky investors.

"When dominoes are falling, portfolio managers are looking for the potential next group to fall, and custody banks have lower capital ratios than other types of banks," added McCrohan. (Editing by Jason Szep and Bernard Orr)