BOSTON (MarketWatch) -- Morgan Stanley is considering a merger with Wachovia Corp. or another bank as one of the last two big brokerage firms tries to halt a swoon in its stock price, the New York Times reported late Wednesday.

Morgan Stanley MS, -2.35% Chief Executive John Mack got a phone call Wednesday from Wachovia WB, -3.74% expressing interest in the Wall Street firm, the newspaper said, citing unnamed people familiar with the situation.

Morgan Stanley is considering other options as well, the paper added, noting that other banks have also expressed interest in the firm. It said the talks are preliminary and no deal may emerge.

Shares of Morgan Stanley slumped 24% on Wednesday. The firm reported better-than-expected earnings late Tuesday, but the stock lost ground amid speculation the company may be forced to hunt for a suitor.

Morgan Stanley didn't immediately return a call for comment Wednesday morning on the merger speculation.

Morgan Stanley and Goldman Sachs GS, -1.14% are the last two large independent brokers. Bear Stearns collapsed earlier this year, Lehman Brothers LEH, has filed for bankruptcy and Merrill Lynch MER, +27.69% has been bought by Bank of America Corp. BAC, -1.32% .

The market meltdown has raised questions about the viability of stand-alone brokers not backed by a large commercial bank. See previous story.

"What we are seeing is unprecedented in terms of turmoil in the financial-services industry," said Morgan Stanley Chief Financial Officer Colm Kelleher during Tuesday's conference call.

"Management indicated that it does not need to combine with a bank and that it has taken actions to strengthen its balance sheet, such as improve its liquidity," Deutsche Bank analyst Mike Mayo wrote in a research note commenting on Morgan's results.

Morgan Stanley shares are off roughly 40% so far this week. Financial stocks were in the red Wednesday as investors digested the government rescue of insurance giant American International Group Inc. AIG, -1.23% .

Investors are growing increasingly worried about brokers' access to funding in the current environment, and the companies have been trying to scale back their balance sheets. Bear Stearns' demise was driven by too much leverage and its trading partners backing away from away it. Wall Street CEOs have complained about short sellers ganging up on them, and in recent weeks rumors alone have been enough to generate wild swings in the stocks.

Goldman Sachs earlier this week said its third-quarter profit fell 70% from a year earlier. CFO David Viniar saying it has no plans to merge or buy a bank or securities firm to expand its funding sources. See earlier coverage.

Goldman Sachs shares were also under pressure Wednesday and closed off 14%. It is down almost 30% for the week.

"A few months ago we cited a view -- which we continue to hold -- that Goldman would combine with a commercial bank if the Fed gains legal authority and chooses to regulate brokers in the similar manner as banks," wrote Fox-Pitt Kelton analyst David Trone in a report to clients Wednesday.

The cost of insuring Morgan Stanley and Goldman Sachs debt spiked Wednesday, reflecting investor uneasiness over the problems gripping the financial sector.

Nervous banks have stopped lending to each other or have raised the rates sharply despite central banks around the world pumping liquidity into the financial system. See full story on WSJ.com.

In another sign of the widespread anxiety, the Securities and Exchange Commission on Wednesday unveiled new rules designed to curtail "naked" short selling, which some claim has helped drive financial stocks lower. See complete story.