NEW YORK (MarketWatch) - Shares of struggling mortgage-finance giant Freddie Mac fell almost 25% Wednesday, posting its biggest one-day percentage drop since November 2007 as concerns about the cost of capital for the firm rattled investors and rippled throughout the broader financial sector.

Freddie Mac FRE, -0.64% shares last at $10 or below a share in 1992.

Freddie's sister company Fannie Mae FNM, +0.85% also fell sharply losing 12.6% on fears that the two might need to raise billions in new capital.

The Financial Select Sector SPDR XLF, -1.24% , an exchange-traded fund that tracks the financial stocks in the S&P 500 Index, lost more than 5%.

Brokerage stocks posted their biggest one-day percentage drop since 1999, as worry about Lehman Bros. and Merrill Lynch shredded those shares and cost the Amex Securities Broker/Dealer Index XBD, -0.82% 6.2%.

The last time the bellwether brokerage index closed off 6% or more was on April 15, 1999, when it closed 6% lower, according to FactSet.

Shares of Wachovia Corp. WB, -3.74% fell 8% after erasing early gains. The bank was upgraded to neutral by analysts at Merrill Lynch and named as a possible acquisition target, with J.P. Morgan Chase & Co. JPM, -0.84% a possible buyer.

Merrill Lynch & Co. MER, +27.69% lost 9.3% to close at $29.74. A news report said a blind trust of New York Mayor Michael Bloomberg is willing to pay between $4.5 billion and $5 billion for the 20% of Bloomberg L.P. that Merrill holds.

Separately, Merrill's 49% stake in fund manager BlackRock Inc. BLK, -0.68% may be sold to several parties, the New York Post reported Wednesday, including sovereign-wealth funds and private-equity firms. See related coverage.

Mortgage brokers and lenders remain in the spotlight after the Mortgage Bankers Association reported a 7.5% rise in mortgage applications since last week, suggesting borrowers may be shrugging off higher interest rates.