U.S. Stock Indexes Trim Gains After House Passes Bill

NEW YORK (MarketWatch) -- The rally in U.S. stocks eased after the House of Representatives approved a revised $700 billion bailout plan, and the major indexes were positioned for steep weekly losses.

House lawmakers voted 263 to 171 to pass the bill. .

"The importance of the rescue plan is that, over time, borrowers and lenders as well as financial markets and individual investors should gradually start shifting their outlook from what could go wrong to what could go right," said Michael Sheldon, chief market strategist, RDM Financial Group Inc.

The Dow Jones Industrial Average hit session highs as House members began to vote, rising more than 300 points, only to scale back as the measure passed.

"The market had already discounted this news, and that's where we're getting the decline," said Ken Tower, senior vice president at Quantitative Analysis Service.

The Dow was recently up 3.5 points at 10,486.35, setting it up for a weekly loss of 5.9%.

Nineteen of the Dow's 30 components remained in positive turf, with Exxon Mobil Corp. up the most at 2.5%.

Bank of America Corp. reversed course, shedding early gains to slide 4.9%.

Citigroup Inc. fell the most among the blue chips, losing 18.7% after the surprising announcement that Wells Fargo & Co. would buy Wachovia .

Citi objected to the $15 billion stock-swap merger agreement between Wells Fargo and Wachovia, saying that Wachovia was not permitted to talk to other potential suitors.

Before the opening bell, the government said the U.S. economy lost 159,000 jobs in September, the worst decline in five years.

"The job losses are accelerating and the credit crunch is adding fuel to the fire. This recession could be deeper and longer than expected," said Sung Won Sohn, economist at California State University.

The S&P 500 rose 1.62 points to 1,112.24, with consumer discretionary and financials fronting the losses among the index's 10 industry groups.

As things stood with a half-hour to go before the closing bell, the S&P 500 was down 8.3% on the week.

The Nasdaq Composite added 3.06 points to 1,979.78, readying it for a 9.3% decline from last Friday's close.

In other data, the Institute of Supply Management reported a slight expansion in economic activity in the services side of the U.S. economy in September.

Trading volume neared 951 million shares on the New York Stock Exchange, with declining stocks edging past advancers 8 to 7. More than 750 million shares traded on the Nasdaq, where decliners passed advancers 8 to 5.

The dollar index , which measures the U.S. currency against a basket of six major counterparts, fell 0.4% to stand at 80.26. .

Treasury prices gained, pushing yields lower, with two-year note yields falling 2 basis points to 1.606%.

Oil fell, with benchmark crude futures off 32 cents to $93.65 a barrel on the New York Mercantile Exchange. .

Gold futures swung between gains and losses, but the contract for December delivery ended down $11.1, or 1.3%, at $833.2 an ounce. .

Capital gains

The Senate's 451-page financial-rescue plan goes beyond aid to the nation's financial markets, offering tax and other perks to Main Street as well.

One element of the revamped measure involves hiking federal insurance on bank deposits in a bid to calm fears and possibly prevent future bank runs like the one preceding the collapse of IndyMac Bancorp Inc. and Washington Mutual Inc. .

Shares of American International Group Inc. jumped 17.8% after the insurance giant announced it would focus on property and casualty insurance as it sells assets to pay off the Fed's $85 billion loan.

On Thursday, U.S. stocks dropped sharply as jobless claims and factory-orders data overshadowed the Senate passage of the rescue plan.

By Kate Gibson