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Disappointing Retail Sales Drag on Stocks

U.S. stock index futures were lower amid uncertainty surrounding Lehman Brothers and were dragged down further after the government's reading on retail sales fell well short of its mark.

Retail sales fell 0.3 percent, when economists had expected a 0.2-percent rise amid a drop in gasoline prices and weak consumer spending. Excluding autos, sales were off 0.7 percent, lower than the 0.2-percent drop expected.

Meanwhile, producer prices fell 0.9 percent, nearly double the 0.5-percent decline expected. Core wholesale prices, which exclude volatile food and energy costs, rose 0.2 percent, as expected.

Also weighing on the market was oil's climb toward $102 a barrel as Hurricane Ike headed for the Texas Gulf Coast.

The market breathed a sigh of disappointment as 6 a.m. ET came and went with nary an announcement from Lehman Brothers.

Lehman Brothers shares were off nearly 6 percent in premarket trading, though they had gained as much as 25 percent on the earlier hopes of a buyout.

Those hopes had also boosted world stocks.

The investment bank is continuing to negotiate a sale of itself to large commercial banks, including Barclays, Bank of America and HSBC. Company officials are trying to get a deal wrapped up and announced by Sunday night, people close to the deal tell CNBC.

Officials from the Federal Reserve and the Treasury are involved in the negotiations, these people say, but as of right now, there are no plans for the government to provide financial assistance to facilitate a purchase of Lehman in the way that the Federal Reserve provided a so-called "back stop" to JPMorgan Chase when it agreed to purchase Bear Stearns in March after that bank imploded because of bad debt on its balance sheet.

Meanwhile, Ladenburg Thalmann's analyst Richard Bove said Bank of America is likely to win the auction for Lehman Brothers as it is a "natural fit" for Lehman.

Also in financial news, Washington Mutual was downgraded to below investment-grade status by Moody's Investors Service, after the largest U.S. savings and loan projected a $4.5 billion third-quarter increase in reserves for bad loans but said it has more than enough capital.

WaMu shares gained nearly 6 percent premarket to $3.

Merrill Lynch shares also were off more than 2 percent premarket as options traders took defensive positions in the Wall Street investment bank.

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BAC
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JPM MLP ETN
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WM
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