Investors dumped stocks late in the session after a big intraday rally, repeating a defensive move seen throughout the yearlong market pullback. As lawmakers voted on the plan, which President Bush quickly signed into law, the Dow advanced more than 300 points. After it passed, the blue chips moved in and out of positive territory before ending down more than 150 points.
Investors had been anxious for resolution on the government's plan to buy up bad assets from banks and other institutions to shore up the financial industry and help resuscitate credit markets. Trading across markets was volatile throughout the week as investors tried to determine whether the plan would win approval and what effect it might have. On Monday, the House's rejection took Wall Street and Capitol Hill by surprise and handed stocks their biggest losses in years.
The Senate subsequently passed a sweetened version of the plan that added tax breaks and raised the limit on federal deposit insurance from $100,000 to $250,000.
"We're three weeks into a severe credit crunch and it's causing untold economic damage to the country," said Hank Smith, chief investment officer at Haverford Investments. He said while the bill's passage will help Wall Street, the broader effects of the paralysis in the credit markets has yet to emerge.
"It's fairly reasonable to assume that this should help unfreeze the credit markets but what we don't know what's happened so far. How much of a dent has it put into the economy?"
The credit markets indicated increased demand for safety. The yield on the 3-month Treasury bill, the safest type of investment, fell to 0.49 percent from 0.70 percent late Thursday. Yields have remained low in recent weeks because investors are eager to safeguard their money.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.61 percent from 3.64 percent late Thursday.
According to preliminary calculations, the Dow fell 157.47, or 1.50 percent, to 10,325.38 after rising more than 310 points.
Broader stock indicators also ended lower. The Standard & Poor's 500 index fell 15.05, or 1.35 percent, to 1,099.23, and the Nasdaq composite index fell 29.33, or 1.48 percent, to 1,947.39.