Wall Street shaken by Lehman failure

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On a black Sunday for Wall Street, 10 of the world's biggest banks also agreed to establish a $70 billion (38.7 billion pounds) emergency fund, with any one of them able to tap up to a third of that.

Separately, troubled insurer American International Group asked the Fed for a lifeline, according to news reports.

The events, which followed three days of talks between bank CEOs and regulators at the Fed's fortress-like Manhattan building, indicate that Wall Street and Washington were accepting that massive triage is needed in the face of the credit crisis and U.S. housing bust.

"The U.S. financial system is finding the tectonic plates underneath its foundation are shifting like they have never shifted before," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

"It's a new financial world on the verge of a complete reorganization."

Lehman will become Wall Street's highest profile bankruptcy since junk bond specialist Drexel Burnham Lambert succumbed in 1990.

S&P500 share futures were down 3.4 percent after Lehman announced it filed for Chapter 11 bankruptcy protection, indicating the stock market will open sharply lower on Monday, and the dollar tumbled.

"This just confirms that we are nowhere near the end of the crisis. And it could get really ugly in the next 6 months or so because there's a lot more to be uncovered," said Christoffer Moltke-Leth, head of sales trading at Saxo Capital Markets in Singapore.

The euro jumped to as high as $1.4479 on Monday, up 1.7 percent from Friday, while U.S. Treasury yields dropped to five-month lows on concern about the stability of the U.S. financial system and as investors increased bets the Fed will cut interest rates.

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