Financials hit as Lehman reported to be wooing buyers

Canadian and American stock markets began the day in the red, then built momentum to finish ahead on Thursday even as fears of continued credit problems in the United States multiplied.

U.S. financial stocks were hit, with two heavyweights posting double-digit declines.

The drops came amid investor unease about U.S. investment bank Lehman Brothers' recovery plan and speculation about whether oil prices could soon move below $100 a barrel.

Lehman's shares finished down 42 per cent to $4.22 US on the New York Stock Exchange, after it announced on Wednesday that it will sell a majority stake in its investment-management arm and spin off its commercial real estate operations to shareholders to mitigate $7 billion US in losses on commercial and residential real estate. Just last week, Lehman was trading as high as $17.53 US a share.

It emerged Thursday that Lehman Brothers has approached other major financial institutions about a potential acquisition or investment.

Bankers and executives at other financial companies said Lehman has been casting a wide net to find a potential buyer for all or part of the company. The bankers and executives have asked not be named, while a spokesman for Lehman declined to comment.

Bank of America Corp., France's BNP Paribas, Deutsche Bank AG and Britain's Barclay's Plc have been mentioned this week as potential buyers of Lehman.

The woes of the fourth-biggest U.S. investment bank pulled at least one other firm down. Merrill Lynch & Co. fell $3.87, or 17 per cent, to $19.43 US.

Toronto's S&P/TSX, coming off a week of nosediving valuations in which it lost 1,500 points, closed up 116 points to 12,613 after gaining 350 on Wednesday.

Falling prices for crude oil are seen as a major factor in driving down Canada's principal stock market, which is heavily weighted to oil, gas and commodity companies.

The TSX energy sub-index gained 1.4 per cent Thursday after falling in the morning. The October futures contract for light, sweet crude fell $1.71 to $100.87 US a barrel on the Nymex, having touched as low as $100.10 a barrel.