U.S. Stock-Index Futures Decline on Lehman, Retail Sales Slump

By Elizabeth Stanton

Sept. 12 (Bloomberg) -- U.S. stock futures fell as Lehman Brothers Holdings Inc.'s attempt to fend off collapse failed to restore confidence in the banking industry, while an unexpected decrease in retail sales spurred concern the economy is slowing.

Lehman Brothers, which lost three-quarters of its value in the past four days, slumped another 14 percent in trading before the open of exchanges as the securities firm sought buyers. Merrill Lynch & Co. slid 6.8 percent, while American International Group Inc. tumbled 14 percent. Macy's Inc. lost 3.6 percent and led retailers lower after the Commerce Department said chain-store sales fell 0.3 percent in August as increasing job losses and home foreclosures weighed on consumers.

Standard & Poor's 500 Index futures expiring in December retreated 12, or 1 percent, to 1,240 at 9:10 a.m. in New York. Dow Jones Industrial Average futures fell 100, or 0.9 percent, to 11,347, and Nasdaq-100 Index futures slipped 17.5, or 1 percent, to 1,764.75.

``We're in a prolonged period of sub-par economic growth,'' Jason Pride, director of research at Haverford Trust in Radnor, Pennsylvania, said on Bloomberg Television. Haverford manages $6.5 billion. ``Investors need to have a heavy weight to high- quality companies with the ability to deliver consistent earnings growth in this difficult environment.''

The S&P 500 has gained 0.5 percent this week, even after tumbling 3.4 percent on Sept. 9 on concern that Lehman would fail to shore up capital. This would be the first weekly increase by the benchmark index for U.S. stocks in a month. Consumer shares have led the rally as crude oil slipped to the lowest since March.

Lehman's Slide

Lehman lost 46 cents to $3.76 as Chief Executive Officer Richard Fuld courted buyers for the investment bank amid signs that the U.S. government may balk at providing the funding that enabled Bear Stearns Cos. to sell itself and avoid bankruptcy.

Fuld, who built Lehman into the biggest U.S. underwriter of mortgage securities during his four decades at the firm, was pushed toward a forced sale after talks about a cash infusion from Korea Development Bank ended, sparking a tumble in the firm's market value during the past three days. Unlike when JPMorgan Chase & Co. took over Bear Stearns, the Federal Reserve and Treasury aren't likely to put up money for a purchase of Lehman, people briefed on the matter said yesterday.

Merrill Lynch fell $1.33 to $18.10, while AIG, the largest U.S. insurer, tumbled $2.45 to $15.10.

Consumer Concern

Macy's retreated 78 cents to $21.07. Excluding automobiles, retail purchases were down 0.7 percent, the most this year, according to the Commerce Department report.

Consumer spending is faltering as wages haven't kept pace with inflation and the effect of the government's tax rebates fades.

Americans are also confronting declining property values and stock prices, indicating even the recent retreat in fuel costs may not be enough to boost sales.

Renewed concern that higher fuel costs will weigh on consumer spending also sent retailers lower. Crude oil rebounded from a five-month low, gaining as much as $1.63 to $102.50 a barrel, as almost all Gulf of Mexico oil production was shut down in preparation for Hurricane Ike.

15 Percent Slump

The S&P 500 is down 15 percent in 2008 and poised for its first annual decline since 2002 after average earnings for companies in the index decreased for four straight quarters.

Financial shares in the S&P 500 have dropped 1.5 percent as a group this week as a 3.4 percent tumble on Sept. 9 overshadowed three other daily advances. The S&P 500 Financials Index is down 36 percent over the past year after global banks racked up $511.7 billion in asset writedowns and credit losses stemming from the worst U.S. housing slump since the Great Depression.

U.S. stocks advanced yesterday as transportation companies rallied on lower oil prices, while banking shares staged a comeback in the last half hour of trading on speculation Lehman Brothers will be bought.

To contact the reporters on this story: Adria Cimino in Paris at acimino1@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net