Lehman bankruptcy, AIG fears

The benchmark Standard & Poor's 500 index (.SPX) fell 59.00 points, or 4.71 percent, - posting its biggestpercentage drop since the day that markets reopened after the September 11 attacks in 2001.The S&P 500 also tumbled to its lowest close since October 2005, taking out a key technical support level as it fell.The Dow Jones industrial average (.DJI) slid 504.48 points, or 4.42 percent, to 10,917.51 -- its biggest one-day point drop since September 2001.The Nasdaq Composite Index (.IXIC) dropped 81.36 points, or 3.60 percent, to 2,179.91.Lehman, weighed down by losses spawned by the U.S. mortgage crisis, sought bankruptcy protection on Monday following a scramble over the weekend in which it failed to find a buyer.Merrill Lynch (MER.N), meanwhile, agreed to be bought by Bank of America Corp (BAC.N), the No. 2 U.S. bank. Merrill's stock closed just 0.1 percent higher at $17.06, but Bank of America's shares dropped 21.3 percent to $26.55."There's some concern they (Bank of America) might have bit off more than they could chew," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.Shares of Wall Street firms such as Goldman Sachs (GS.N) and Morgan Stanley (MS.N) also slid on concerns about the viability of their business models, which are similar to those of Lehman Brothers and Bear Stearns, analysts said.Goldman Sachs shares fell 12.1 percent to $135.50, while Morgan Stanley shares dropped 13.5 percent to $32.19.The concern was heightened due to the U.S. government's decision not to provide guarantees for any deal to help Lehman avert bankruptcy.The S&P financial index (.GSPF) tumbled 10.6 percent.