Financial worries drive Wall Street down 2 percent

By Steven C. Johnson

NEW YORK (Reuters) - U.S. stocks fell sharply on Monday as credit concerns hounded financial stocks while global growth worries hurt big technology and industrial companies.

The three major indexes fell about 2 percent each, wiping out gains booked on Friday, though traders said thin, end-of-summer conditions may have exaggerated the moves.

Stocks started the day under selling pressure, led by financials, after regulators late on Friday closed Columbian Bank and Trust, the ninth U.S. bank to fail amid a weakening economy and falling home prices.

American International Group Inc, the world's biggest insurer, was among the top drags on the Dow, with its shares falling to a 13-year low. Credit Suisse cut the company's share price target and forecast a huge loss for the insurer.

Shares of Lehman Brothers fell 6.3 percent after a top South Korean regulator voiced concern about state-run Korea Development Bank's interest in acquiring a global bank.

Lehman had surged on Friday after KDB said it was considering the U.S investment bank among an array of acquisition options.

"You've got more of the concerns we've seen about credit and the financials. Lehman's down because of the speculation that the bid is not happening, and there's a negative report on AIG," said Bobby Harrington, head of block trading at UBS in Stamford, Connecticut.

The Dow Jones industrial average was down 241.73 points, or 2.08 percent, at 11,386.33. The Standard & Poor's 500 Index was down 25.28 points, or 1.96 percent, at 1,266.92. The Nasdaq Composite Index was down 49.12 points, or 2.03 percent, at 2,365.59.

Adding to the gloom, the International Monetary Fund trimmed its global growth forecasts for 2008 and 2009 in a note prepared for a meeting of the Group of 20 nations, a G20 finance official told Reuters.

And Britain reported that its economy ground to a halt in the second quarter, the lowest reading since 1992.

AIG's shares fell 5.5 percent to $18.77, after falling as low as $18.64. Late on Friday, Fitch Ratings said it may cut AIG's credit ratings.

Lehman shares fell 6.3 percent to $13.50 after soaring on Friday. An index of S&P financial companies lost about 3.1 percent.

Industrial conglomerates were among the biggest decliners on the S&P 500. Heavy equipment maker Caterpillar Inc, which has a large overseas exposure, fell 2.4 percent to

$68.56.

Technology shares also fell amid concerns about the global economy. Apple Inc, whose shares fell 2.4 percent to $172.55, was the top pull on the Nasdaq. Ninety-seven of the Nasdaq 100's stocks were in the red on the day.