U.S. Stocks Plunge As Rescue In Jeopardy; Dow Sinks 700

NEW YORK (MarketWatch) -- U.S. stocks sank, with the Dow Jones Industrial Average plunging as much as 700 points, with the government's $700 billion rescue plan for the financial sector seemingly in jeopardy as votes were cast Monday afternoon in the House of Representatives.

Stocks were already sharply lower as the global credit crisis spread, with four bailouts in Europe and the takeover of Wachovia Corp. in the U.S. roiling securities, commodities and currencies markets and forcing major central banks to pump hundreds of billions of dollars more into the financial system.

The meltdown intensified as U.S. lawmakers voted on a $700 billion financial rescue plan that some were already saying would not be enough to prevent a full-scale financial crisis in many major countries.

"The Fed and other central banks are responding to the freezing up of liquidity around the world. The actions, however, don't seem to be ameliorating any of those fears yet. Indeed, equities are plunging further," said analysts at Action Economics.

After falling 700 points, the Dow Jones Industrial Average was more recently off 444.52 points to 10,698.61, with all of its 30 components posting declines, led by American Express Co. , off 11.9%.

The Federal Deposit Insurance Corp. earlier said Citigroup would buy the banking operations of struggling Wachovia Corp. . Another banking giant, Washington Mutual Inc. , recently succumbed to the credit turmoil.

The S&P 500 dropped 61.22 points, or 3.8%, to 1,151.79, with energy, financials and materials fronting sector losses that spread across all 10 of the index's industry groups.

The Nasdaq Composite plunged 122.18 points, or 5.7%, to 2,061.16, with losses in the tech sector led by Apple Inc. , off nearly 14.2%, after two brokers cut their ratings on its stock. .

The downturn had shares of Google Inc. falling to a two-year low below $400 a share, recently off 8.4% at $396.43.

Volume on the New York Stock Exchange hit 825 million, with decliners ousting advancers nearly 15 to 1. On the Nasdaq, 650 shares exchanged hands, and decliners ran past advancing stocks more than 4 to 1.

Fed moves

Taking unprecedented steps, the Fed and other major central banks on Monday poured hundreds of billions of dollars of added liquidity into money markets left paralyzed by fears of further bank failures in the United States and Europe. .

Ahead of Wall Street's start, President Bush urged passage of the government's $700 billion financial-rescue package, which is awaiting final approval from Congress. .

The deal, reached during marathon weekend talks, calls for $250 billion upfront to be given to the Treasury to buy troubled assets. The bad debt purchases could be made through an auction process or through directly purchases, a Treasury official said in a conference call.

Equity strategists at Credit Suisse say $700 billion represents about 12% of mortgages not backed by Freddie Mac or Fannie Mae -- "probably an appropriate amount to ensure markets become more liquid." But they said it was too small, especially compared to the original Resolution Trust Corp. program that rescued savings-and-loans in the late 1980s.

Shares of Cleveland-based bank National City Corp. fell 51.8% amid fears the company could become the next victim of the credit crisis.

Mortgage giant Freddie Mac , taken over by the government, on Monday said it had been subpoenaed by federal prosecutors.

In Europe, financial institutions were also ailing, with the governments of Belgium, the Netherlands and Luxembourg launching a $16.4 billion rescue of Fortis, the Belgian-Dutch bank.

The U.K. government said it is nationalizing Bradford & Bingley after investors and lenders lost confidence in the mortgage lender, with its stock market listing canceled shortly before the markets opened.

And, the Icelandic government said it boght a 75% stake in Glitnir hf, the country's third-largest lender, while a consortium of German financial institutions bailed out real estate firm Hypo Real Estate.

Early economic data had the Commerce Department reporting flat consumer spending in August, the third month of weak U.S. consumption. .

Credit markets remained under pressure, with the yield on the 3-month Treasury bill -- viewed as the least risky short-term investment, falling to 0.42% from 0.87% late Friday. The yield on the 10-year Treasury note declined to 3.71%. .

The dollar rallied against the euro and the British pound, while gold gained and oil futures fell.
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The FTSE 100 tumbled 5.3% in London and the Nikkei 225 dropped 1.3%. .

Emerging equity markets in Asia, Europe, Latin America and Africa also posted steep losses. .


By Kate Gibson