Lehman Brothers Holdings was forced into talks about a possible sale after the Wall Street investment bank's shares plunged more than 40 percent, raising questions about its survival.

Lehman and US officials were in intensive discussions about a number of options, including a complete sale, sources with direct knowledge of the talks said. One of the sources said the firm was resisting government intervention.

The Treasury and Federal Reserve were engaged in the talks, which could be completed as soon as this weekend, a second source said.

The US government is hoping to avoid spending money on a bailout, another person familiar with the situation told Reuters.

Bank of America Corp or Barclays could be suitors, according to various reports. Bank of America, Barclays and Lehman declined to comment.

Lehman chief executive Dick Fuld, long resistant to ceding the firm's independence, has been trying to sell just a part of the 158-year-old firm instead of the whole company, sources familiar with the situation said.

But investors, anxious for some kind of resolution, knocked down Lehman shares by 42 percent on Thursday as the dearth of information from the company stoked fears some clients and trading partners might take their business to more stable firms.

"Although many investors thought it would be avoided, customers of Lehman Brothers are becoming more and more skittish in their dealings with them," said William Lefkowitz, options strategist at vFinance Investments, a brokerage firm in New York.

Six months since the collapse and eventual fire-sale purchase of investment bank Bear Stearns, confidence in the Wall Street business model has faded.

The crisis came on a difficult day for Lehman, the 7th anniversary of the Sept. 11 attacks that severely damaged its headquarters across the street from the World Trade Center.

Lehman -- founded in 1850 by three German immigrants who traded cotton -- was the centre of the market's attention.

With Thursday's stock fall, its market capitalization fell to $2.93 billion, behind once much-smaller companies like Huntington Bancshares at $3.04 billion and Raymond James Financial at $3.8 billion. Goldman Sachs Group has a market cap of $61.8 billion.

"As much as they try to ... calm investors down, investors don't have yet the answers they need," said Rose Grant, managing director of Eastern Investment Advisors.

"There's a complete lack of faith, lack of confidence and lack of trust."    

The problem with Wednesday's announcement from Lehman was that it did not convince investors the firm could sell assets at good prices and raise enough capital to restore confidence in its business.

"We thought getting news out of Lehman was going to clear the dark cloud, but it really doesn't. It just leaves us with a company that's limping along, that may or may not make it," said Arthur Hogan, chief market analyst at Jefferies & Co.

The company has written down billions of dollars in assets in the last year -- largely holdings of complex mortgage-backed securities.

And over the last several months, it has been battling rumors of defecting clients and talk of a discounted takeover. "It's unfortunate that we're in the kind of position now where events can take over. The stock is telling us that Dick Fuld is running out of options," said Michael Holland, founder, Holland & Co, which oversees more than $4 billion. - Reuters