Updated from 10:11 a.m. EDTU.S. stocks were slumping Wednesday as traders awaited the outcome of a Senate vote on the Bush administration's rescue package for the financial system. A bearish manufacturing report by the Institute for Supply Management was adding to investor pessimism. The Dow Jones Industrial Average was down 175 points to 10,675, and the S&P 500 dropped 21 to 1145. The Nasdaq gave back 39 points to 2053. During Tuesday's session, stocks posted large gains, partially recovering from a sharp selloff Monday. As the new day got underway, investors were still waiting for news on a $700 billion financial-sector bailout proposal rejected by the House of Representatives on Monday. 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. According to reports, the bill 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. 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 Wachovia ( WB) merged with JPMorgan Chase ( JPM) and Washington Mutual ( WM) 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." According to reports by The Wall Street Journal and Reuters, former AIG ( AIG) 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.
Elsewhere, Bloomberg reported that Swiss bank UBS ( UBS) 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. 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 ( BHP) gained approval from the Australian government to buy Rio Tinto ( RTP). In analyst actions, Exxon Mobil ( XOM) 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. Industrial conglomerate General Electric ( GE) saw its shares suffer after a Deutsche Bank analyst projected declining earnings for the coming fiscal year. 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 1-10/32 to yield 3.66%, and the 30-year was gaining 2-23/32, to yield 4.15%. The dollar was stronger vs. the euro and pound, but weakening against the yen. Over in commodities, crude oil was losing $3.65 to $96.99 after the Energy Information Administration said that crude inventories for the week ended Sept. 27 rose by 4.3 million barrels. Gold was climbing $4.40 to $885.20. In Europe, exchanges such as London's FTSE and Frankfurt's DAX were trading downward. The Nikkei in Japan closed with gains. Markets in Hong Kong, China and Singapore were closed for a holiday.