The Wall Street Journal reported on its Website that Lehman is in talks with BlackRock over the sale and is expected to announce a separate plan to spin off some commercial real estate assets into a new company, citing people familiar with the matter.

Lehman, a casualty of the U.S. subprime mortgage crisis, has brought forward the release of the initiatives and quarterly results by a week to 7:30 a.m. EDT on Wednesday after its shares sank as much as 46 percent on Tuesday on growing concern over its ability to raise capital.

Lehman had already taken $7 billion in credit-related write-downs and losses since the start of the global credit crisis.

Facing what may be billions of dollars in additional write-downs, the bank has examined options from selling a stake to a Korean bank to spinning off its investment management unit.

But state-run Korea Development Bank confirmed on Wednesday talks had ended with Lehman over a possible investment.

"We are announcing that we ended talks at this point in time because of a disagreement over conditions of a transaction and considering domestic and foreign financial market conditions," KDB said in a statement.

A South Korean government official said earlier on Wednesday that KDB had ended the talks with Lehman due to lack of progress.

"No more talks are under way on a deal between the two sides," the official briefed on the matter told Reuters by telephone, asking not to be identified.

World stocks fell towards two-year lows on Wednesday as investors focused on the fate of Lehman. The yen trimmed losses, while bonds remained in red.

"Lehman's meltdown won't probably be the last negative episode of this credit crisis," said Christian Jimenez, president of Imene Investment partners, in Paris.

KEY INITIATIVES

The Journal also said a new company, made up of some commercial real estate assets that are to be spun off, is being referred to internally at Lehman as SpinCo. The remaining portion of the firm, shorn of much of its distressed real-estate assets, is being called CleanCo.

The investment bank has also been looking out for investors to buy a piece of its investment management unit, which includes the profitable asset-manager Neuberger & Berman.

People familiar with the matter told the Journal that a sale of a piece of the company's investment-management unit could fetch about $5 billion. Analysts have said Neuberger could fetch $7 billion to $8 billion in a sale.

Lehman spokeswoman Anne Lui in Hong Kong declined to comment on the Wall Street Journal report.

The firm's woes raised the possibility of a Washington-sponsored rescue just a few days after a U.S. takeover of mortgage companies Fannie Mae and Freddie Mac and months after the Bear Stearns meltdown, which resulted in a fire sale brokered by the government. U.S. officials declined to comment.

Shares of Lehman plunged as much as 46 percent on Tuesday, wiping out $4.4 billion in market value. The stock closed at $7.79 on the New York Stock Exchange, down $6.36.

Investors are worried that Lehman Chief Executive Richard Fuld may fail to raise enough capital to keep the company operating as losses mount from soured mortgages and other toxic assets.

In what looked like a concerted effort to boost investor confidence in Lehman, a slew of Wall Street firms, including Goldman Sachs and Citigroup Inc , put out statements saying they were still trading with the firm late on Tuesday afternoon.

(Reporting by Sweta Singh in Bangalore, Kim Yeon-hee and Marie-France Han in Seoul, Natsuko Waki in London, Blaise Robinson in Paris; Writing by Jean Yoon; Editing by Lincoln Feast)