The credit crisis has taken a new and dangerous turn: Shares of a large money market mutual fund have "broken the buck" -- fallen below the standard $1 a share -- because of losses on IOUs from brokerage Lehman Bros. Holdings Inc.

The Reserve Primary Fund in New York, which had $65 billion in assets at the end of August, said it cut its share price to 97 cents after marking down the value of $785 million in Lehman debt securities, following the brokerage’s filing for bankruptcy court protection on Monday. Read the fund's statement here.

The Reserve Primary Fund’s situation apparently was exacerbated as big investors have fled in the last two days, forcing the fund to sell other securities. Assets have dived by more than 60% since Sunday, Bloomberg News reported.

The fund, apparently seeking to dissuade other investors from leaving while it sorts out the situation with its Lehman IOUs, today said it would take up to seven days to meet investors’ redemption requests. Normally, money funds redeem investors’ shares immediately on request.

The fund also said it had valued the Lehman IOUs at zero for the moment. That, too, could be a move to discourage redemptions, because it’s conceivable the securities have some value.

The woes of Reserve Primary Fund -- the nation's oldest money fund -- are sure to set off a public relations blitz by other mutual fund companies to forestall an investor panic.

"The whole money fund industry is going to be out there trying to assure people," said Pete Crane, head of Crane Data, which tracks the industry.

Crane said the Reserve Primary Fund lacked a "deep-pocketed" parent company that could step in and buy out the Lehman IOUs. A number of other money funds have been caught with dicey debt over the last year as the credit crisis has deepened, but their parent firms have chosen to purchase the securities to keep shareholders whole.

Crane noted that the Evergreen Funds said on Monday that parent Wachovia Corp. agreed to back up Lehman debt in three Evergreen money funds. See the announcement here.

Money market funds, which hold a record $3.5 trillion, have long been considered relatively safe because they're supposed to limit their investments to high-quality, short-term securities. The funds don’t guarantee that they can keep their share prices steady at $1, but before today only one other fund has broken the buck -- and that was a small institutional fund, in 1994.

Money funds overall have taken in $400 billion in fresh cash this year alone as nervous investors have sold stocks, bonds and other assets and sought a haven where they believed their principal was protected.

Reacting to the Reserve Primary Fund's bomb, the Investment Company Institute, the trade group for mutual funds, said that it was "working closely with its members and with regulators, including the Securities and Exchange Commission and the Federal Reserve, to maintain open communications about market conditions and their impact on funds."

There’s high irony in the Reserve Primary Fund's troubles: The fund’s founder is 71-year-old Bruce Bent, who is considered to be the father of the money fund industry, which dates back to the early 1970s.

Just last week Bent was quoted in a Wall Street Journal story saying that "the purpose of [a] money fund is to bore the investor into a sound night's sleep."

A call to the company’s offices in New York wasn’t returned.