MARKET TALK: S&P Cuts Mortgage-Drenched Lehman To Sell

Edited by Paul Vigna Of DOW JONES NEWSWIRES (call: 201-938-5172; e-mail: paul.vigna@dowjones.com) MARKET TALK can be found using N/DJMT

1:36 (Dow Jones) S&P's equity research unit downgrades Lehman Brothers (LEH)to sell from hold. "We believe LEH may be forced to write down a larger portionof its mortgage-related positions given recent market trends, although we notehedging positions may mitigate some losses," analyst Matthew Albrecht writes. "We are also concerned with the rising amount of high-yield bridge loancommitments outstanding that it may be forced to extend, as well as adeteriorating M&A environment." He keeps '07 EPS estimate at $8.08 but slashestarget price by $15 to $55. LEH down 1.3% at $60.02. (JED)

1:28 (Dow Jones) New York-traded emerging-market shares dodges morningdownward pressure to hold on to gains. Bank of New York's Emerging Market ADRindex up 0.4% at 316, with BoNY's Latin America index up 0.9%. Asian ADRs stilldown; BoNY's Asia index retreats 0.5%. (CSS)

1:27 (Dow Jones) Stock index futures pull back from the day's highs, with SeptS&P's returning to near unchanged levels after midday. Better-than-forecastearnings and easing of subprime concerns were credited for early session gains.Sept S&P's dipped below the 200-day moving average of 1476.70, having surpassedthat level earlier. Recently trading at 1470.20, up 0.3 points, off the high of1479.80. Sept Nasdaq off its high of 1977.00. Recently at 1965.00, up 4.5. SeptDJIA last at 13425, up 21, off the high of 13460. (HLP)

1:18 (Dow Jones) US stocks continue to bounce around, though the majoraverages have managed to maintain a mostly positive tone so far, with anoccasional downdraft keeping gains in check. Energy stocks are particularlyweak, followed by materials and chips. Strength in Honeywell, IBM and H-P shareshelp sustain Dow Industrials gains. DJIA up 25; Nasdaq ahead 8; S&P 500 off 1. (JHS)

1:06 (Dow Jones) Think anybody still believes Lone Star's going to pay $15.10/share for Accredited Home Lenders (LEND)? Shares are down a steep 40% thismorning, last at $5.09, after the company warned it may be forced out ofbusiness. That's quite a precipitous drop for a stock that was at $60 last May.Lone Star declined to comment, and LEND hadn't yet returned calls seekingcomment. But clearly the market doesn't expect the deal to get done at $15, oranywhere near it. And they shouldn't. (PJV)

12:53 (Dow Jones) Advanced Medical Optics (EYE) doesn't expect confusion whenit hits stores with "Complete" branded contact lens solution, to replace "Complete MoisturePlus," which was yanked due to infection links. New launch willhave different box and label, doctors are aware of difference and new box willtell people to rub and rinse lenses - a departure from old "no rub" label. "Ithink it's going to be a clear differentiation," says Richard Meier, EYE's CFOand COO, on analyst call. Health regulators are concerned people are still usingold product and don't know it's been recalled. EYE up 4.7% to $31.98. (JDK)

12:42 (Dow Jones) Bally's (BFTH) Chapter 11 filing may signal it's time forbankruptcy lawyers and bankers to get in shape, Deal Journal writes. The filing,which came after the company lost control of an $800M debt load, punctuates ahistoric period of quiet in corporate defaults. But with the leveraged-lendingmarkets suddenly turning nasty, the case could mark a turning point. Companiessuch as Bally could end up victims of the very lending practices that havesustained them of late, as the enormous backlog of private-equity loans bigbanks such as Citigroup and JPMorgan have on their books may turn off the loanspigot to companies that simply need cheap funding to stay in business. (DC) (http://blogs.wsj.com/deals/2007/08/02/ballys-gets-caught-up-in-loan-market-clampdown/)

12:34 (Dow Jones) Gold and silver directionless ahead of tomorrow's employmentreport, with equities relatively steady and US dollar not seeing a big moveagainst the euro, says Dave Rinehimer, director of futures research at CitigroupGlobal Markets. Comex Dec gold up 40c at $676.30; Sep silver up 7c at $13.025. "We might just chop around here today ahead of that number," Rinehimer says. (MWH)

12:28 (Dow Jones) Roger Ehrenberg at Information Arbitrage is bracing for morehedge-fund damage, Market Beat reports. "Exactly how many funds will be laid lowby the current credit markets ugliness? I'd hazard a guess that the final countwill be in the low hundreds," he writes. "I keep asking myself why, why this ishappening, and it always comes back to the common thread separating the trulysuccessful hedge funds with long track records from road kill: strong riskmanagement practices." (TA) (http://blogs.wsj.com/marketbeat/2007/08/02/blog-roll-grinding-the-gears/)

12:19 (Dow Jones) Survival data from Pharmion's (PHRM) bone cancer drug Vidaza"will increase the market for treatment of MDS, myelodysplastic syndromes, as50% patients currently not treated," Piper Jaffray says. Drug will directlycompete with MGI Pharma's (MOGN) dacogen and "will allow PHRM to steal marketshare," firm adds. Morgan Stanley says results "almost guarantees EU approval,which will give them 10 years of marketing exclusivity there." PHRM up 51% at $37.27; earlier set 52-week high at $39.88. MOGN down 3.8% at $24.27. (BDP)

12:10 (Dow Jones) First, it was "well contained." Now it's "manageable."What'll it be next? When the fallout in the credit markets first hit in thesubprime mortgage market, everybody said it was "well contained" to that narrowspace. But, of course, it wasn't and it continues to spread. Now we're seeingmore claims that it's "manageable." It's spread, it's an issue, but it'smanageable. Maybe it is, but you can see how well contained the fallout was, soit's worth taking these latest assertions with a grain or two of salt. (PJV)

12:00 (Dow Jones) In case anyone was still unsure about where Advanced MedicalOptics (EYE) stands on the pursuit of Bausch & Lomb (BOL), EYE CEO James Mazzomakes it very clear on 2Q call with analysts. Asked what EYE liked about BOL, hesays he's already forgetting what they were talking about and now has more timeto talk about his own business. "We were not pleased with the process, but fromour standpoint it's over and we're moving on," Mazzo says. EYE up 3.8% to $31.72. (JDK)

(END) Dow Jones Newswires 08-02-07 1336ET Copyright (c) 2007 Dow Jones & Company, Inc.