Market dives after House vote

NEW YORK - Wall Street's worst fears came to pass yesterday when the government's financial-rescue plan failed in the House of Representatives and stocks plunged precipitously - hurtling the Dow Jones industrials down nearly 7 percent.

The 777.68-point decline was the largest one-day point drop ever for the index.

The percentage declines for the Standard & Poor's 500 and Nasdaq composite indexes were even larger. And credit markets, whose turmoil helped feed the stock market's angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.

The selling was so intense that just 162 stocks rose on the NYSE - and 3,073 dropped.

In fact, all the stocks on the Standard & Poor's 500 index fell except one: Campbell Soup Co., of Camden, which rose 12 cents. Analysts were betting a poor economy will keep people eating at home.

Stunned traders on the floor of the New York Stock Exchange, their faces tense and mouths agape, watched on TV screens as the U.S. House of Representatives voted down the administration's $700 billion plan to buy up distressed mortgage securities. Floor activity became frenetic as the "sell" orders blew in.

The blue-chip index dropped by hundreds of points in minutes. By day's end it had passed its previous record for a one-day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.

Traders on the floor were stunned.

"Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty," said Gordon Charlop, managing director with Rosenblatt Securities Inc. "The bailout not going through sends a signal that Congress isn't willing to do their part."

Wall Street is contending with these issues against the backdrop of a credit market - where bonds and loans are bought and sold - that is barely functioning because of fears that money will never be paid back.

The evidence of the credit markets' ills could again be found yesterday in the Treasury's three-month bill; investors were stashing money there, willing to take the tiniest of returns simply to be sure that their principal would survive in what's considered the safest investment. The yield on the 3-month bill was 0.15, down from 0.87, and approaching zero, a level reached last week when fear was also running high.

It was the 17th biggest percentage decline for the Dow and remained well below the more than 20 percent drops seen on Black Monday of October 1987 and the Depression.

The Standard & Poor's 500 index declined 106.62, or 8.79 percent, to 1,106.39. It was the S&P's largest-ever point drop and its biggest percentage loss since the Oct. 19, 1987, crash.

The Nasdaq composite index fell 199.61, or 9.14 percent, to 1,983.73, the third-worst percentage decline for the index.

The Russell 2000 index of smaller companies fell 47.07, or 6.68 percent, to 657.72.

"The collateral damage is mounting, that we need to resolve this," said Gus Sauter, chief investment officer at the Vanguard Group Inc., of Malvern. "Right now the market is locked, financing is locked, and it's because banks and brokers don't have enough capital to function fully. They need to recapitalize, and if they can't, we're just going to remain locked up here."

A huge drop in oil prices, and a rise in gold, were added signs of the economic chaos that investors fear.

Wall Street found further reason for worry overseas, as the fallout from U.S. economic problems keep spreading. The British government nationalized mortgage lender Bradford & Bingley P.L.C., and three European governments agreed to inject Fortis NV with a $16.4 billion bailout.