U.S. Stocks Slide As Hopes For Auto Bailout Fade

NEW YORK (MarketWatch) -- U.S. stocks turned lower after briefly flirting with positive territory in afternoon trading Thursday, after it appeared unlikely Congress would soon approve emergency loans for ailing automakers.

Senate Majority Leader Harry Reid said the Big Three automakers must submit a new plan to Congress in order to be considered for U.S. aid. Reid said auto-state senators had reached a compromise plan but that it wouldn't pass the House or Senate.

The senators from both sides of the aisle had planned to present their proposal at a mid-afternoon news conference Thursday, according to a report from the Associated Press.

"In a normal operating environment, this group being headed for bankruptcy would be manageable but given where we are, a bailout plan may be necessary," said Owen Fitzpatrick, head of U.S. equity at Deutsche Bank. "Bankruptcy is not a body blow that the market could handle at this point."

The Dow Jones Industrial Average fell 129 points, or 1.2%, to 7,897. The blue-chip average earlier fell to an intraday low of 7,774, just one point above its Oct. 10 low.

Reid said Congress would return the week of Dec. 8 if Ford Motor , General Motors and Chrysler could come up with a new plan.

GM was up 6%, halving its gains after reports of the deal hit the wires. The stock previously plunged more than 20%. With concerns about a possible bankruptcy continuing to hit the stock of the auto giant, GM's financing unit GMAC applied to become a bank holding company to access emergency cash from the government.

Ford shares rose 15%.

Citigroup Inc. remained in the red, falling more than 19%. But that's well off earlier lows that saw the bank's shares plunging as much as 25% even after Saudi investor Prince Alaweed said he would raise his stake in the bank to 5%.

The S&P 500 index was down 18 points at 788, after falling to a morning low of 775. The S&P hit its bear market low of 2000-02 on Oct. 10, 2002, when it touched the 768 level. The closing low of that bear market was 776 on Oct. 9, 2002.

"The 2002 lows are within reach and it's not unreasonable to expect that we'll get there [as] there's not many buyers in the market," Fitzpatrick said. "That seems to be the consensus of where support seems to lie."

The Nasdaq Composite was down 18 points at 1,66, also well off a morning low of 1,345.

Trading volumes showed 1.4 billion shares exchanging hands on the New York Stock Exchange and 943 million shares trading on the Nasdaq stock market. Decliners outpaced gainers by a margin of 4 to 1 on the NYSE and of 3 to 1 on Nasdaq.

Economic concerns drove a barrel of crude oil to slump below $50 for the first time in more than three years. But the move, seen more as a sign of how bad the economic outlook has become than as a positive for consumers, failed to provide much relief to the market.

The energy sector remained the worst performer on the S&P, falling more than 7%, followed by telecoms, which fell more than 2%, and health care, off 2.3%. Technology, industrials and the consumer discretionary sector, which includes automakers, all turned higher.

"The next 48 hours could be volatile, due to the uncertainty of the bailout of the Big Three U.S. automakers, weak financials and options expirations on Friday," said strategists at BNP Paribas.

Underlying concerns about the battered financial sector continued to weigh on the market after Treasury Secretary Henry Paulson said the outgoing administration won't use some of the $700 billion from the Troubled Assets Relief Program to buy debt securities.

On Wednesday, stocks were crushed to 5 1/2-year lows, with credit market-led fears and Citigroup's $17 billion balance sheet addition punishing markets. The Dow Jones Industrial Average dropped 427 points, the S&P 500 lost 52 points and the Nasdaq Composite fell 52 points.

Overseas, the Swis National Bank made a surprise and steep one percentage point rate cut Thursday.

Still, markets were lower on the session.

Major earnings will come after the close when Dell , Limited Brands and the Gap report results.

Grand Canyon Education priced its initial public offering at $12, the low end of a twice-lowered range as it ended the longest IPO drought in a decade.

Overseas, the pan-European Dow Jones Stoxx 600 lost more than 4%, while the Nikkei 225 fell nearly 7% in Tokyo.

Job cuts between 1,400 and 2,700 each were announced by AstraZeneca , Rolls-Royce, Sandvik and PSA Peugeot Citroen.

By Nick Godt