US stocks retreated sharply on Tuesday after Lehman Brothers dropped a record 45 percent and Oil breached crucial $100 mark.

Dow Jones settled at 11230.73, down 280.01 (2.43%) points. S&P 500 finished at 1224.51, down 43.28 (3.41%) while Nasdaq dropped 41.40 (2.35%) and settled at 1721.55. S&P 500 suffered its worst percentage decline since late February 2007.

Energy and financials were the worst losers among the S&P's 10 industry groups, with the former off 8.3 % and the latter down 6.1%.

Lehman Brothers Holdings Inc. (LEH) plunged 44.6% after hopes of a capital injection from Korea Development Bank were dashed. The stock closed down $6.36 at $7.79 on the New York Stock Exchange, and touched its lowest level since October 1998. The sharp slide wiped out $4.4 billion in market value, based on reported shares outstanding, and was a factor in broad declines in major U.S. stock indexes.

Standard & Poor's said it may lower its A1 long-term rating on Lehman because the ``precipitous decline'' in the share price creates uncertainty about the firm's ability to raise additional capital.

Other financial stocks also tumbled on concern the fourth-largest Wall Street investment bank won't be able to raise sufficient capital to survive the global credit crisis.

American International Group Inc. (AIG) was down 19.3%. American Express Co. (AXP) fell 5.6%.

Shares of Wachovia Corp. (WB) finished 5.6% lower.

Wells Fargo & Co. (WFC) dropped 2%.

Energy stocks too finished with sharp losses as Oil fell to a five-month low in New York and Brent oil in London dropped below $100 a barrel. The market is "well-balanced'' Saudi Oil Minister Ali al- Naimi said to. Rafael Ramirez, Venezuela's energy and oil minister said the group should leave production unchanged.

Massey Energy Co. (MEE) had the biggest decline since 2000, losing 19 percent to $38.90. Oil refiner CVR Energy Inc. (CVI ) sank 23 percent, the most since shares began trading in October 2007, to $10.78. Newfield Exploration Co. (NFX) lost the most since its 1993 initial public offering, dropping 14 percent to $35.19. Petrohawk Energy Corp. (HK ) fell 17 percent, the most in at least nine years, to $21.90. Valero Energy Corp. (VLO ) fell the most since at least 1997, losing 12 percent to $30.51. 

AK Steel Holding Corp. (AKS) dropped 16 percent to $33.72 after Harbinger Capital Partners, the top shareholder in the third-largest U.S.-based steel producer, sold 3.1 million shares, according to a filing with the U.S. Securities and Exchange Commission.

McDonald's Corp. (MCD) climbed 1.2% after the fast-food giant said same-store sales during August increased by 4.5% in the U.S. and by 8.5% globally.

Credit Suisse downgraded four U.S. homebuilders - Toll Brothers Inc. (TOL) , D.R. Horton Inc. (DHI), Pulte Homes Inc. (PHM) and KB Home (KBH) to neutral from outperform. The four finished the day deep in red.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in July, was down 3.2 percent to 86.5 from an upwardly revised index of 89.4 in June. Economists had forecast a 1.0 percent drop. In June the index surged 5.8 percent.

Inventories at U.S. wholesalers rose 1.4 percent last month, double what economists had forecast. At the same time sales dropped 0.3 percent versus a 3 percent rise in June.

European markets gave away their early gains.U.K. FTSE 100 index fell 0.6% to 5,415.60. The German DAX 30 index dropped 0.5% to 6,233.41; the French CAC-40 index lost 1.1% to finish at 4,293.94.

Earlier, Asian stocks too fell, with the Japan's Nikkei and Indonesia's Jakarta Composite Index down 1.8% and 4.3 percent respectively.