NEW YORK — Stocks fell sharply Monday as investors once again questioned when the financial sector would be able to turn itself around. The Dow Jones industrial average lost 180 points.
A blistering sell-off in shares of mortgage-finance giants Fannie Mae and Freddie Mac radiated across bank, brokerage and housing stocks after an article in Barron's, a financial weekly, postulated that the government was likely to assume control of Fannie and Freddie, wiping out their existing shareholders.
Fannie Mae skidded $1.76, or 22%, to $6.15, a 19-year low, while Freddie Mac plummeted $1.46, or 25%, to $4.39, its lowest price in 17 years.
"It's not just about Fannie and Freddie," said Gail Dudack, chief strategist of Dudack Research Group in New York. "It's about how troubles at Fannie and Freddie would spill over to the broad financial sector. That's the big concern."
And because Fannie and Freddie own or guarantee nearly half of the country's $12 trillion in outstanding mortgage debt, their woes can be bad news for the housing market.
Consequently, a widely watched index of bank stocks slid 3.9%, while an index of big home-builder stocks fell 6%.
Concerns about Fannie and Freddie aren't new, but they caught investors' attention on a day with relatively little favorable news, analysts said.
"We had a day where no good news hit the tape and where there was a rekindling of these smoldering financial flames," said Fred Dixon, chief market strategist at D.A. Davidson. "That was all it took."
The Dow, which was off more than 200 points in the afternoon, ended the day down 180.51 points, or 1.6%, at 11.479.39.
Broader indexes also lost ground. The Nasdaq composite index declined 35.54 points, or 1.4%, to 2,416.98, while the Standard & Poor's 500 index slid 19.60 points, or 1.5%, to 1,278.60.
Stocks of smaller companies, which had recently outperformed their larger brethren, did no better than the large-company averages. The Russell 2,000 small-cap index fell 1.5%.
Trading volume was light as many Wall Street investors were away on summer vacations.
The market got little relief from commodity prices, whose decline in recent weeks had helped push up stocks.
Oil prices fell back again, dropping 90 cents to $112.87 a barrel, but a closely tracked commodity index rose 0.5% as grain prices rallied. Crude futures earlier shot above $115 a barrel as Tropical Storm Fay approached Florida, but the storm later appeared unlikely to disrupt petroleum facilities in the Gulf of Mexico.
