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Wall Street Feels Bailout Burnout

The major stock indices end a negative session with modest losses as investors await a Senate vote on a rescue plan for the financial industry.

Updated from 3:04 p.m. EDT

After suffering through a day of gloom and volatility, U.S. stocks closed with modest losses Wednesday as traders await the outcome of a Senate vote on the Bush administration's rescue package for the financial system.


Dow Jones Industrial Average

, which had been down some 218 points earlier, ended the day off 19.59 points, or 0.2%, at 10,831.07, and the

S&P 500

lost 5.3 points, or 0.5%, at 1161.06. The


gave back 22.48 points, or 1.1%, to 2069.4.

Investors were still waiting for news on a $700 billion financial-sector


proposal rejected by the House of Representatives on Monday.

The Real Story Wrap: Oct. 1

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The revised bill before the Senate includes a temporary increase in the Federal Deposit Insurance Corp.'s insurance on bank deposits to $250,000 from $100,000. The bill also extends existing tax breaks for individuals and businesses for two years.

The bill also will temporarily let the FDIC borrow unlimited funds from the Treasury to further bolster its insurance of U.S. deposits. Such a move could help alleviate strains on banks, as depositors have increasingly reduced deposit levels to the current $100,000 FDIC insurance limit.

Such a revision to the financial rescue package will provide additional pressure for lawmakers to pass the bill, wrote Tony Crescenzi, chief bond market strategist at Miller Tabak, on his

blog. "This possibility will put pressure on members of the House and Senate to vote in favor of the bill not only because of the potential for impact on markets, but because of the possibility of backlash from constituents on the FDIC insurance issue," he wrote.

Kenny Landgraf, president and founder of Kenjol Capital Management, said the increased FDIC protection will help alleviate the withdrawal of capital from financial institutions. After


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merged with

JPMorgan Chase

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Washington Mutual

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failed, "the question is, who's next?" said Landgraf.

"We need to go some period of time without some financial institution failing or being taken over. Investors are scared; I've never seen this level of fear."

In other government actions, the

Securities and Exchange Commission's

ban on short-selling of certain stocks, including those of many financial firms, is set to expire Thursday. However,


reported that the SEC is likely to leave the ban in place past its original expiration; although it was not immediately clear how much longer the agency would extend the deadline.

Wednesday also saw the beginning of a new government initiative to allow an estimated 400,000 homeowners to avoid foreclosure by trading their existing mortgages for loans that would be easier to pay. The optional program requires that homeowners take a loss on the original loan.

According to reports by

The Wall Street Journal



, former


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CEO Maurice Greenberg requested the opportunity to bid on the insurance company's assets. AIG, which has taken out an emergency bridge loan from the government as part of its effort to raise capital, was reportedly contemplating the sale of various assets to stave off a government takeover. AIG shares gained 19% to $3.95.



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reported that Swiss bank


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may be cutting as many as 1,900 investment banking, equities and fixed-income jobs. UBS announced earlier this year that it would split its business after incurring large subprime-related writedowns. Shares climbed 8% to $18.95.

Landgraf said that he anticipates a reduction in dividends and cutbacks in expansion plans as companies try to preserve capital. "The uncertainty whether this bailout plan will do what it's intended to do to unfreeze the credit markets," he said. "If you have cash now, you certainly might want a little more of that because of the uncertainty."

Meanwhile, mining concern

BHP Billiton

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gained approval from the Australian government to buy

Rio Tinto


. BHP slipped 2.4% to $50.79, and Rio Tinto edged up 0.5% to $250.77.

In analyst actions,

Exxon Mobil

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caught a Barclays Capital upgrade to overweight from equal weight. Barclays said that the company's market value per barrel of oil has fallen despite an increase in oil prices. The stock climbed 1.2% to $78.58.

Industrial conglomerate

General Electric

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suffered after a Deutsche Bank analyst projected declining earnings for the coming fiscal year. The company later issued a statement defending its credit position as default swaps on the company climbed and its stock price fell. The company said that it has been able to fund its business with corporate-paper sales.

GE announced a $12 billion offering of common stock to the public.


also said Warren Buffett's

Berkshire Hathaway

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would take a $3 billion stake in GE perpetual preferred stock. Shares dropped 3.9% to $24.50.

Auto sales

were looking dismal.


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reported a 34.6% year-over-year decline in September sales, its worst sales month this year. Wall Street had expected a 22% decline. The stock plummeted 13% to $4.55.


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sales fell 29.5%, sending shares down 2.2% to $83.90.

General Motors

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announced a 15.8% decline, but shares were unchanged at $9.45.

As for economic data, Automatic Data Processing's September

private nonfarm employment

figures showed a loss of 8,000 jobs, far better than economists' estimates for a decline of 50,000. ADP revised its August lost-jobs count to 37,000 from a previous read of 33,000.

The Institute for Supply Management's manufacturing index for September came in at 43.5, below the 49.5 anticipated by economists and down from 49.9 in August. The Commerce Department's reported that construction spending was flat for August, better than an expected decline of 0.5%.

Reflecting additional pain in the housing market, the Mortgage Bankers Association said that applications for home loans fell 23% in the week ended Sept. 26.

Longer-term U.S. Treasuries were rising in price. The 10-year note was up 25/32 to yield 3.73%, and the 30-year was gaining 1-28/32, to yield 4.2%. The dollar was stronger vs. its major foreign competitors.

Over in commodities, crude oil lost $2.11 to settle at $98.53 after the Energy Information Administration said that crude inventories for the week ended Sept. 27 rose by 4.3 million barrels. Gold settled up $6.50 to $887.30.

In Europe, London's FTSE was marking gains, while Frankfurt's DAX was trading downward. The Nikkei in Japan closed higher. Markets in Hong Kong, China and Singapore were closed for a holiday.