US stocks rebound, but Lehman remains a worry

US stocks made a stunning comeback today, as investors snapped up some of the financial sector’s stronger players and pumped money into the materials and transportation sectors. The Dow Jones industrial average rose more than 160 points.

A drop in crude below 101 dollars a barrel also helped reverse early losses, particularly among carmaker and transportation stocks like railroad CSX Corp, Ford Motor Co and General Motors Corp.

Early in the day, most bank and brokerage stocks sold off on nervousness about Lehman Brothers Holdings Inc’s announcement Wednesday that it planned to sell its investment management unit and spin off its commercial real estate assets. The company is seeking to raise cash after making bad bets on holdings tied to real estate.

Traders and analysts appeared unimpressed with the steps outlined by the nation’s No. 4 investment bank, punishing the stock. Citigroup and Goldman Sachs lowered their ratings on the stock to “hold” from “buy.” Lehman fell 3.03 dollars, or nearly 42%, to close at 4.22 dollars.

“The steps they’re taking are being seen by Wall Street as too little, too late,” said Arthur Hogan, chief market analyst at Jefferies & Co, referring to Lehman. “You’re looking at a company that was a 10 billion dollar company last week that is a three billion dollar company today.”

But later in the day, major names including JPMorgan Chase & Co, Wells Fargo & Co, and even the embattled Washington Mutual Inc soared.

“Not everybody’s in trouble, and people are realising that,” said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. He added, however, that the market was very rumour-driven right now – which can make for very volatile price movements.

According to preliminary calculations, the Dow rose 164.79, or 1.46%, to 11,433.71, after falling by as many as 170 points in the early going.

Broader stock indicators rose. The Standard & Poor’s 500 index rose 17.01, or 1.38%, to 1,249.05.

The Nasdaq composite index rose 29.52, or 1.32%, to 2,258.22.