Stocks Plunge as Rescue Plan
Fails to Gain House Approval

Stocks plunged Monday as the U.S. House of Representatives voted down a $700 billion rescue plan for Wall Street, leaving the teetering financial industry and perhaps the broader U.S. economy in renewed jeopardy.

The Dow Jones Industrial Average was off more than 700 points immediately following the House's mid-afternoon vote. It recently traded down almost 584 points, off 5.2%, at 10559.31, down 7.6% since since crisis erupted a few weeks ago on Wall Street following the meltdown of Lehman Brothers Holdings.

If the Dow's losses hold through the close – which veteran traders believe could see a particularly heavy flurry of orders – it would mark the biggest one-day point drop since Lehman's bankruptcy. All 30 of the blue-chip indicator's components were lower in recent action.

The bailout's failure throws into limbo the prospects for an unprecendented federal intervention that the White House and many financial-industry veterans believe is necessary to alleviate the burden of soured credit bets lingering on many banks' books. Those instruments have clogged Wall Street's usual financing activities for months and, in a worst case scenario, could lead to an even more intractable freeze-up that would represent a severe blow to the broader economy.

"There is a panic mentality afoot today," said Bruce Bittles, chief investment strategist at Robert W. Baird.

The S&P 500 was recently down 6.7% to 1132.15. All of the broad measure's sectors traded lower, led by a nearly 11% slide in its financial category.

The small-stock Russell 2000 was down 5.5%, trading at 666.20. The technology-focused Nasdaq Composite Index fell 7% to 2031.43.

European Pressphoto Agency

A trader works on the floor of the New York Stock Exchange in New York.

The prospect of a bailout package for Wall Street has dominated trading for more than a week, with proponents of an intervention arguing that government action is necessary to keep banks willing and able to extend credit to an array of businesses in other sectors that drive economic growth.

Of course, whether those companies will feel confident enough about the demand outlook for their goods and services to want to expand their operations is a separate matter. Concerns that many companies, at best, will remain on pause in the months ahead hampered stock indexes across the board early in Monday's session.

The glum realization that the U.S. financial industry and the broader economy were likely to continue struggling even if the bailout bill passed dominated the early going of Monday's session. The lingering risks for investors were underscored as four European institutions sought rescue plans from their local governments and Wachovia became the latest struggling U.S. bank to sell itself off in order to survive.

But without a rescue plan in place for Wall Street, the way ahead is even murkier, traders said.

"We're stunned right now, just trying to figure out what comes next," said one broker at the New York Stock Exchange

Members of the House voted 220 to 198 Monday morning to move the bill forward. But around 1:45 p.m. Washington time, it became clear that the bill might not pass a final vote, prompting a marked pickup in stock selling on the NYSE floor.

The bailout bill that failed to win passage in the House on Monday was hammered out over the weekend by the Bush administration and senior congressional leaders. It called for $250 billion upfront to be given to the U.S. Treasury to buy troubled assets, which then, subject to Congressional disapproval, could rise to as high as $700 billion.

Investors flocked to U.S. government debt looking for safety. The yield on the 3-month Treasury bill, considered the safest short-term investment, fell near 0.70% from 0.87% late Friday. The price of the benchmark 10-year note jumped 1-8/32, pushing the yield down to 3.701%, compared to 3.827% late Friday.

The troubles in Europe sent the dollar rallying against the euro and the British pound. The U.S. Dollar Index, which measures the greenback's value against a basket of six overseas denominations, rose 0.7%.

Oil futures dropped slid almost $8, trading under $100 a barrel in New York as fears about slowing demand due to global economic weakness gripped the commodity markets. The broad Dow Jones-AIG Commodity Index slid more than 4%.

Analysts said the flurry of developments around the world is confirming fears that the global financial contagion is likely to spread further before any recovery. "There's an increasing realization that the cleanup and the mending of all that's gone wrong is going to take an extended period to work through, and we're going to see an extended recovery period," said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.

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