Rumors hammering Lehman shares again

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Financial stocks are facing another big test of investors’ staying power after the sector’s bounce last week.

Shares of Lehman Bros. were hammered today on renewed rumors that the firm faces a financial squeeze a la what happened to rival Bear Stearns Cos. two weeks ago. Lehman slumped $3.78, or 9%, to $38.71.

A Lehman spokeswoman tells Reuters: ‘There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self interest.’

The shorts -- who bet on lower stock prices -- have swarmed around Lehman in the last few months. The total number of shorted Lehman shares was 46.6 million on March 14, according to New York Stock Exchange data. That was up from 34 million at the end of November.

So, yes, they would have an economic interest in a lower stock price. But then, every time a financial company’s stock is beaten up the shorts get blamed.

Meanwhile, coming into today’s trading, analysts at Oppenheimer & Co. and Sanford C. Bernstein & Co. revised their first-quarter expectations for Merrill Lynch & Co., and now expect it to lose money instead of posting a profit.

Bernstein expects Merrill to lose $1.60 a share because of more write-downs for devalued bond holdings, Reuters reports. Bernstein had previously expected Merrill to earn $1.30 a share.

Merrill shares slid $2.52, or 5.7%, to $41.90. The stock hit a five-year closing low of $41.18 on March 17 -- the first trading day after the Federal Reserve arranged the marriage of Bear Stearns with JPMorgan Chase & Co.

As a group, financial stocks bottomed with Merrill on March 17. Within the Standard & Poor’s 500 index the financial-sector sub-index closed at 313.62 on March 17, then rebounded to reach 359.03 on Monday of this week, a gain of 14.5% from the low. The index today closed at 338.55. If it can hold above the March 17 low in the next couple of weeks it’ll help the bullish case on financials.

If not -- look out below.