The OMXS index was down more than 3 percent within minutes of the opening bell on Monday as investors were greeted with the news of the Lehman bankruptcy.
There was particular concern for Swedish banks, some of which had holdings in the beleaguered US investment bank.
The index dropped further by midday, but recovered some ground by the close of trading to finish at 262.8, down 2.9 percent for the day.
Stock and financial analyst Peter Malmqvist placed blame for the drop on the uncertainty created by the failing of such a venerated US financial institution.
“Of you look at normal patterns when this type of turbulence occurs, first we have a shard drop, then a smaller drop the day after, and then things calm down by the third day,” he told the TT news agency.
But the overall dip in the OMXS seemed small compared with the losses suffered by some of Sweden’s major banks.
The Nordea bank’s shares lost 4.8 percent, closing at 85.30 kronor, while Swedank stock sank 7.5 percent to close at 107.50.
Shares of SEB and Handelsbanken also fell in part due to the roughly 600 million kronor ($88 million) interest each had in Lehman Brothers.
SEB shares finished the day down 7 percent to 109.75 kronor, while Handelsbanken saw its share price drop 3.5 percent to 152.50.
Meanwhile, continued speculation about the possibility of a take over of Scandinavian airline SAS caused its shares to jump 9.5 percent to a closing price of 60.50 kronor.