Get Ready for Another Financial Rescue Weekend

In a year that has seen three U.S. financial giants falter, a fourth name could be gone come Monday: Lehman Brothers (NYSE: LEH), which could be taken over by the end of the weekend in a government-engineered takeover.

With the extraordinary de-leveraging of the U.S. financial system in its fourteenth month, a takeover of Lehman, the oldest major Wall Street firm, could be announced before Asian markets open for trading Sunday night.

If so, it will be the second major financial rescue in a week, following the government’s takeover of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) last weekend. JP Morgan (NYSE: JPM) acquired Bear Stearns earlier this year, with assistance from the federal government.

And traders are already wondering which financial firms will be next in line for bailouts, with attention turning to Washington Mutual (NYSE: WM) and AIG (NYSE: AIG).

The crisis will end when enough leverage unwinds and values become compelling enough that markets begin to function again. And then the strongest survivors will prosper — perhaps even the U.S. government will realize eventual gains from its holdings — but getting to that point has been a rocky ride indeed.

Despite the massive financial unwinding, stocks were little changed Friday, but the major indexes remain about 20% below their all-time highs set last fall, a commonly accepted definition of a bear market. Stocks have been basing since July, but have so far lacked the broad-based buying needed for a major bottom, and signs of economic weakness have been growing — including much weaker than expected retail sales reported today.

Cisco (NASDAQ: CSCO), Level 3 (NASDAQ: LVLT), Oracle (NASDAQ: ORCL), Sun (NASDAQ: JAVA), Google (NASDAQ: GOOG) and Yahoo (NASDAQ: YHOO) were some of the winners on the Nasdaq.

VMware (NYSE: VMW) jumped 5% ahead of next week’s VMworld conference.

Apple (NASDAQ: AAPL) lost 2.4% after American Technology Research lowered estimates on the company.

F5 (NASDAQ: FFIV) rose 3.7% on a JP Morgan upgrade, while Quality Systems (NASDAQ: QSII) fell 7.5% on a Piper Jaffray valuation downgrade.

The Nasdaq rose 3 to 2261, the S&P gained 2 to 1251, and the Dow slipped 11 to 11,421. Volume declined to 6.27 billion shares on the NYSE, and 2 billion on the Nasdaq. Advancers led by a 19-14 margin on the NYSE, while decliners led 14-13 on the Nasdaq. Upside volume was 53% on the NYSE, and 47% on the Nasdaq. New highs-new lows were 23-201 on the NYSE, and 38-166 on the Nasdaq.

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