U.S. Stocks Tumble, Sending S&P 500 to Worst Drop in Six Years (Lynn Thomasson, Elizabeth Stanton)

Sept. 15 (Bloomberg) -- U.S. stocks tumbled, pushing the Standard & Poor's 500 Index to the steepest drop since September 2002, as Lehman Brothers Holdings Inc.'s bankruptcy and declining commodities increased speculation the slump in financial markets and the economy will deepen. 

Lehman plunged 95 percent and American International Group Inc. sank 51 percent after more than $25 billion in losses from subprime-related investments in the last four quarters made with mostly borrowed money. Economic concerns pushed down oil, prompting a drop in energy stocks, and sent General Electric Co. to a 7.4 percent retreat. Stocks erased about half a trillion dollars as financial shares in the S&P 500 decreased the most since at least 1989, according to data compiled by Bloomberg.

{xtypo_quote_right} "It's all basically going down the drain," said Franz Wenzel, who helps oversee about $830 billion as deputy director for investment strategy at Axa Investment Managers in Paris. "The rhythm of the shoes that drop has accelerated. That's what we follow with caution." {/xtypo_quote_right} 

"Fear is in charge," said Henry Herrmann, president and chief executive officer of Waddell & Reed Financial Inc. in Overland Park, Kansas, which manages $70 billion. "This blows another hole in the banking system's ability to extend credit."

The S&P 500 declined 47.60 points, or 3.8 percent, to 1,204.10 at 3:49 p.m. in New York, the lowest level since November 2005. Its retreat was the biggest in six years, when shares tumbled in the wake of WorldCom Inc.'s bankruptcy. The Dow Jones Industrial Average tumbled 408.57, or 3.6 percent, to 11,013.42. The dollar weakened the most against the yen since August 2007 and Treasuries surged.

More than 16 stocks slipped for each that rose on the New York Stock Exchange on concern financial shares will continue their slump. The S&P 500 has decreased more than 20 percent since an October record as bank losses from the first nationwide decline in U.S. home values since the Great Depression reached $514.6 billion.

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