Bottom Drops Out; Dow Plummets 5.6%

A November manufacturing survey from the Philadelphia Federal Reserve yielded an index reading of negative 39.3 for November, worse than minus 37.5 the previous month. Economists were anticipating a reading of negative 35.

Still another indicator came from the Conference Board, who said its October leading indicators index fell 0.8%, a greater decline than the 0.6% forecast by analysts.

Speaking on the economy in Simi Valley, Calif., Treasury Secretary Henry Paulson said that the financial system needs more transparency. He said that excessive risk-taking contributed to the current economic mess but cautioned that regulatory oversight should be properly targeted and well designed.

For a time in the early afternoon, the market went firmly into positive territory following sketchy reports that the Senate had reached a bipartisan deal on a loan package for the auto industry. But the rally faded after legislators held a news conference at which they said they wanted to see more details from the carmakers before they would vote on any monetary help.

Jack Ablin, chief investment officer at Harris Private Bank, said a deal to help the automakers would've added clarity to a highly uncertain market. "I think that's part of the reason we moved from the doldrums early this morning," he said.

Ablin said that a bankruptcy filing by one of the Big Three could have significant impact on the economy. He said that as the companies' debt has had junk-equivalent ratings for more than a year, such an event would not have as large an impact on the capital markets as Lehman Brothers' bankruptcy did. However, he said, there are additional risks.