* Oil advances amid dollar weakness
* Fannie, Freddie rise in choppy trading
* Credit jitters weighs on sentiment
* Dow off 0.7 pct, S&P 500 off 0.6 pct, Nasdaq off 1.1 pct
(Updates to midmorning)
By Ellis Mnyandu
NEW YORK, Aug 21 (Reuters) - U.S. stocks fell on Thursday
as fears of more credit losses in the financial sector jolted
investors, while resurgent oil prices rekindled fears of a
consumer spending slowdown.
Shares of mortgage finance companies Fannie Mae <FNM.N> and
Freddie Mac <FRE.N> reversed losses in volatile trading as
uncertainty about a possible government bailout led to
short-covering.
The fears about financial stocks centered on major
investment banks cutting the outlooks for other investment
banks. They also forecast more write-downs at Wall Street
firms, including Lehman Brothers <LEH.N> and Goldman Sachs
<GS.N>. For details, see [].
Shares of Lehman Brothers fell more than 4 percent, while
those of Goldman Sachs fell more than 2 percent. Shares of Bank
of America <BAC.N>, down 2.4 percent, were a top drag on the
S&P 500, countering an advance in Exxon Mobil <XOM.N> shares,
helped by higher oil prices.
Analysts said mounting credit losses buffeting the
financial sector may exacerbate the impact of the housing slump
on the broader economy, along with the rebound in oil prices.
"Being in cash still looks pretty darn good," said Andrew
Kanaly, chairman of Kanaly Trust Company in Houston, Texas.
"It's really tough for the housing market to stabilize
since there's no credit. We also had gotten a little rest in
the price of oil, but not today."
The Dow Jones industrial average <> slid 82.07 points,
or 0.72 percent, to 11,335.36. The Standard & Poor's 500 Index
<.SPX> shed 8.10 points, or 0.64 percent, to 1,266.44. The
Nasdaq Composite Index <> fell 27.11 points, or 1.13
percent, to 2,361.97.
U.S. front-month crude jumped $5.12 to $120.65 a barrel as
the dollar pulled back sharply from this week's eight-month
highs versus a basket of currencies. The jump in oil prices
fanned spending concerns and added to worries about
inflationary pressures.
Shares of Fannie Mae were up 4.8 percent at $4.61, while
Freddie Mac slipped to $3.23. Initially, both stocks had fallen
by about 20 percent after the market open.
Fannie and Freddie are viewed by many as critical pillars
of the U.S. housing market and investor are eager to see what
sort of rescue they might get from the government.
Citigroup analyst Prashant Bhatia widened his third-quarter
loss estimate for Lehman Brothers. In addition, Bhatia and
Lehman Brothers analyst Roger Freeman cut their quarterly
earnings view for Goldman Sachs and Morgan Stanley <MS.N>.
Bhatia projected Lehman to take an additional $2.9 billion
of write-downs in the third quarter. He expects $1.8 billion of
writedowns at Goldman and $1.7 billion at Morgan Stanley.
Shares of Lehman fell to $13.06 on the New York Stock
Exchange, while Goldman Sachs shares dropped to $154.79, and
those of Bank of America, the No. 2 U.S. bank, fell to $28.48.
In economic data, a government report showed the number of
people filing for jobless benefits fell for the second week in
a row last week.
A survey by the Philadelphia Federal Reserve showed that
the pace of contraction in U.S. Mid-Atlantic factory activity
moderated in August as businesses found relief in a sharp
pull-back in energy costs. []. Both indicators had
caused stocks to reduce losses temporarily.
(Editing by Kenneth Barry)
