NEW YORK - Financial markets remained tense Friday after efforts to approve a $700 billion banking bailout hit a serious roadblock. Stocks declined while demand for safe-haven buying in government debt eased.
Investors were unnerved as government efforts to avoid an economic meltdown unraveled. On Thursday, Republican lawmakers rejected the emergency financial rescue package over the enormous price tag of the White House-backed proposal, hours after congressional leaders from both parties announced they were nearing agreement on a deal. Shortly after the opening bell on Wall Street, President Bush said at the White House that lawmakers can express doubts but ultimately should "rise to the occasion" and approve a plan to stave off an economic calamity. Congressional leaders also spoke out in favor of the plan early Friday.
The rescue is designed to remove billions of dollars of bad mortgages and other risky assets from the books of financial firms in a bid to free up lending and revive the economy. In a last-minute shake up, some Republican lawmakers want an alternative plan under which the government would provide insurance to companies that agree to hold frozen assets, rather than have the U.S. purchase the assets.
With the prospects of a deal uncertain, negotiations in Washington were continuing Friday as investors kept close watch on the proceedings.
Stocks declined unevenly, with technology shares falling sharply after Research In Motion Ltd. warned late Thursday that its gross margins would contract in the quarter that ends in late November because of the costs for producing three new BlackBerry models. The stock fell $24.52, or 25 percent, to $73.01.
The market was also uneasy after Washington Mutual Inc. became the largest U.S. bank to fail. The Federal Deposit Insurance Corp. seized WaMu on Thursday and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion. It was the largest bank by far to fail in U.S. history and the latest financial firm to collapse under the weight of enormous bad bets on the mortgage market. JPMorgan rose 51 cents to $43.97.
Although WaMu's failure was expected, it nonetheless underscored for investors how widespread the problems are in the financial sector.
Credit markets remained strained, though they showed improvement. The yield on the 3-month Treasury bill, considered the safest short-term investment, rose to 0.91 percent from 0.72 percent late Thursday. The lower the yield on a T-bill, the more desperation there is in the market; investors are willing to take a return of practically nothing in return for preserving their principal. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.81 percent from 3.84 percent late Thursday.
In late morning trading, the Dow Jones industrials fell 57.26, or 0.52 percent, to 10,964.80.
Broader stock indicators also fell. The Standard & Poor's 500 index declined 15.97, or 1.32 percent, to 1,193.21, and the technology-heavy Nasdaq composite index fell 34.55, or 1.58 percent, to 2,152.02.
Light, sweet crude for November delivery fell $2.32 to $105.70 on the New York Mercantile Exchange.
Uncertainty over the bailout package left the dollar mixed against other major currencies. Gold prices rose.
The Commerce Department said the spring's economic rebound was less robust than previously estimated. Gross domestic product, or GDP, increased at a 2.8 percent annual rate in the April-June period. That fell short of the 3.3 percent growth estimated a month ago, but was still better than two previous dismal quarters.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 246.1 million shares.
The Russell 2000 index of smaller companies fell 12.02, or 1.70 percent, to 693.72.
Overseas, Japan's Nikkei stock average fell 0.94 percent. Britain's FTSE 100 fell 1.66 percent, Germany's DAX index fell 1.28 percent, and France's CAC-40 fell 0.98 percent.