The Merrill-BofA deal is moving closer but could still falter. A deal is expected at $26 per share or higher. Meanwhile, AIG is set to shift capital from its regulated insurance business to a holding company. Complete stories to follow.

 

Reuters 1:10 

U.S. stock-index futures tumbled on concern a potential Lehman Brothers Holdings Inc. bankruptcy will add to banks' $514 billion of subprime-related losses.

Federal Reserve and U.S. Treasury officials met in an emergency session as Barclays PLC abandoned talks to acquire Lehman, the fourth-largest U.S. securities firm until last week. Bank of America Corp. also ended takeover discussions, according to a person with knowledge of the matter.

Standard & Poor's 500 Index futures expiring in December retreated 38.90, or 3.1 percent, to 1,219.60 at 6:07 p.m. in New York. The benchmark index for U.S. equities declined 15 percent this year, led by a 28 percent plunge in financial companies.

``The collapse of this deal casts a dark cloud over Wall Street,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``It also sends a message that the government is getting out of the bailout business and makes financial institutions like AIG and WaMu look even more vulnerable.''

American International Group Inc., the largest U.S. insurer, plunged 46 percent last week and Washington Mutual Inc., the country's biggest savings and loan, dropped 36 percent on concern about their financial health.

Barclays, the U.K.'s third-largest bank, and Bank of America, the biggest U.S. consumer bank, were among the leading candidates to acquire all or parts of New York-based Lehman.