(RTTNews) - Investors are selling stocks in morning trading on Monday, as concerns over the health of the financial sector have been reignited. With a major brokerage firm filing for bankruptcy, another Wall Street firm being acquired and the largest insurer trying to deal with a credit crisis, investors have little reason to buy into the stock market.

Earlier in the day, Bank of America (BAC) announced that it is acquiring Merrill Lynch (MER) for $50 billion in an all-stock transaction. The deal is expected to close in the first quarter of 2009. It has been approved by the directors of both companies and is subject to shareholder votes at both companies.

The deal between Bank of America and Merrill Lynch came after BofA, along with other potential buyers, declined to bail out Lehman Brothers (LEH) over the weekend, spooked by the Treasury’s refusal to provide aid. Following the failed talks, Lehman said that it intends to file for Chapter 11 bankruptcy protection in order to protect its assets and maximize value.

Meanwhile, troubled insurance giant American International Group Inc. (AIG) is seeking a capital infusion from private equity firms Kohlberg Kravis Roberts & Co. LP and J.C. Flowers & Co. in a bid to thwart credit downgrades, Bloomberg reported Sunday. AIG is also said to be trying to sell certain assets.

In other news, Microsoft Corp. (MSFT) said on Monday that it would sign a global partnership agreement with the Society for Worldwide Interbank Financial Transactions, or SWIFT.

Commenting on the deal, Amanda Westwood, global head of SWIFT’s customer service division said, “The continued work Microsoft does to support SWIFTNet integration and SWIFTSolutions partners goes even further toward helping expand these solutions for our customers both within organizations and across boundaries.”

In recent trading, the major averages have moved well off of their worst levels of the day, although they remain sharply lower. The Dow is currently down 282.12 at 11,139.87, the Nasdaq is down 29.48 at 2,231.79 and the S&P 500 is down 27.68 at 1,224.02.

Sector News

Most energy stocks are sharply lower in morning trading, hurt by a substantial drop in oil prices. The Amex Oil Index is down 4.8 percent, while the Philadelphia Oil Service Index is falling 3.5 percent. The price of oil has fallen well below the key $100 a barrel mark and is currently down $4.87 a barrel.

Steel stocks are also seeing significant selling pressure, with the Amex Steel Index seeing a decline of 5.4 percent. The index is reversing the gain posted in the previous session.

Meanwhile some banks are showing considerable weakness. The Dow Jones Bank Index is down 5.6 percent, while the KBW Bank Index is falling 2.7 percent.

Bank of America is contributing to the weakness in the banking sector following the news that it is acquiring Merrill Lynch. Shares of the bank are currently trading down by 15.1 percent after setting a three-week intraday low.

Wireless stocks are also posting substantial losses. The Amex Wireless Index is down 2.5 percent, adding to a modest decline in the previous session. With the drop, the index set a two year intraday low earlier in the day.

Other stocks that are sharply lower include real estate, housing and health insurance stocks. The Morgan Stanley REIT Index is down 2.3 percent, the Philadelphia Housing Index is down 1.6 percent and the Morgan Stanley Healthcare Payor Index is down 1.7 percent.

On the other hand, airline stocks are seeing considerable buying interest, helped by the drop in oil prices as well as an upgrade of the sector by an analyst at UBS. The Amex Airline Index is up 4.1 percent, adding to notable gains posted in the previous two sessions.

Stocks Driven By Analyst Comments

Among individual stocks, Louisiana-Pacific (LPX) is seeing significant selling pressure after being downgraded by an analyst at RBC Capital Markets. The analyst downgraded the stock to an Underperform rating from a Sector Perform rating.

Shares of the construction products manufacture are currently trading down by 7.2 percent, reversing the gains posted in the previous three sessions. On Friday, the stock set a three-month closing high.

Korn/Ferry International (KFY) is also posting a substantial loss after a Robert W. Baird analyst downgraded the stock to a Neutral rating from an Outperform rating. The analyst also reduced the stock’s price target to $19 from $20. The stock is down 6.5 percent after setting a monthly intraday low.

On the other hand, National Instruments (NATI) is seeing a notable gain after a Weisel analyst upgraded the stock to a Market Weight rating, stating that the company has strong organic growth potential. Shares of National Instruments are up 3 percent, ending a recent downtrend.

Other Markets

Stock markets in Asia-Pacific region that were open for trading on Monday tumbled after U.S. investment bank Lehman Brothers filed for Chapter 11 bankruptcy protection. However, the financial markets in Japan, Hong Kong, China and South Korea remained closed on account of public holidays.

The major European averages are trading significantly lower following the events that unfolded in the U.S. financial space. The French CAC 40 Index and the German DAX Index are trading down 3.8 percent and 3.5 percent, respectively, while the U.K.’s FTSE 100 Index is receding 2.1 percent.

On the economic front, Eurostat reported that total hourly labor costs in the euro area rose by 2.7 percent in nominal terms in the second quarter compared to 3.5 percent in the previous quarter. Wages and salaries rose by 2.8 percent in the second quarter and non-wage costs were up 2.2 percent.

Meanwhile, treasuries continue to see substantial buying interest, as investors move out of the stock markets and into the safety of government backed bonds. Subsequently, the yield on the ten-year note is currently down 19.9 basis points at 3.531 percent.

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Posted in Categories: Economy, Eurozone, Japan, Releases, USA.

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