US STOCKS-Fannie, Freddie worries cause stocks to swoon

* Financials fall, led by Fannie, Freddie * U.S. rescue would hurt GSEs' shareholders * Jitters over possible big loss by Lehman--newspaper * Home builder sentiment stuck at record low in August * Dow off 1.7 pct, S&P 500 off 1.5 pct, Nasdaq off 1.6 pct (Updates to afternoon)

By Steven C. Johnson

NEW YORK, Aug 18 (Reuters) - U.S. stocks tumbled on Monday as uneasiness about the prospect of more losses from the mortgage crisis bruised shares of banks and the two big U.S. home finance companies.

A one-two punch of gloomy financial news stoked market anxiety, sending all three major indexes down more than 1 percent and reminding investors that the credit crisis and housing slump were far from over.

Mortgage finance giants Fannie Mae (FNM.N) and Freddie Mac (FRE.N) each lost 18 percent after a Barron's report suggested the U.S. Treasury may recapitalize the companies, a move that could wipe out shareholders.

The Treasury Department responded by saying it had no plans to backstop either of the two companies, which own or guarantee some $5 trillion in outstanding U.S. mortgage debt, but Freddie shares still dropped to their lowest level since July 15. For details, see [ID:nWAT009920]

Shares of Lehman Brothers fell over 4 percent after the Wall Street Journal reported that analysts are bracing for a third-quarter loss at the investment bank of $1.8 billion or more. For details, see [ID:nN17380162]

The Standard & Poor's Financial Index .GSPF was down 3.3 percent, reversing two consecutive sessions of gains.

Adding to market jitters was a report showing home builder sentiment stuck at a record low in August, battered by ever-tightening lending conditions and a flood of foreclosed homes. For details, see [ID:nNAT004296]