Investors still nervous after Senate OKs rescue plan

By Charley Blaine and Elizabeth Strott

Traders and investors around the world looked to be taking a wait-and-see attitude tonight about the prospects for a U.S. government rescue of the nation's banking system.

Markets were mostly lower after the Senate approved the plan by a vote of 74 to 25. The bill would allow the Treasury Department to buy up to $700 billion in distressed assets from banks, investment houses and other financial institutions. The bill also would boost the size of bank deposits that the government will insure to $250,000.

Futures trading in major U.S. stock indexes suggested the Dow Jones industrials may open down 80 points to around 10,750 on Thursday. The Standard & Poor's 500 Index was looking at a 9-point decline to 1,152, and the Nasdaq-100 Index ($NDX.X) was looking at an 15-point drop to 1,549. The index tracks the largest Nasdaq stocks.

Meanwhile, Japan's Nikkei 225 Index ($N225) was down 125 points, or 1.1%, to 11,243 at 10:25 p.m. ET.

The reaction to the bill's passage was a signal of how concerned investors are about the House of Representatives vote on the bill, which will come on Friday. When a House vote on Monday failed, the Dow fell 778 points in response.

Also, some investors suggested said that investors who had been buying into markets ahead of the Senate vote were taking profits.

"We sent a message to America, all Americans, that we will not let the economy fail," Sen. Harry Reid, D-Nev., the Senate majority leader, said after the vote.

"This was a measure for Main Street, not Wall Street," Sen. Mitch McConnell, R-Ky., said after the vote. "This was a measure that was much needed to unfreeze the credit markets and get the economy working again."

As the Senate vote neared, financial experts warned that credit markets could seize up entirely in the next few weeks without some help for beleaguered banks and cause serious harm to the U.S. economy and economies around the world.

With the package, Wachovia economist Mark Vitner told Bloomberg News today, unemployment could rise to 8% or so. Without it, joblessness could rise to "10% to 12%."'

Sens. John McCain and Barack Obama, the Republican and Democratic presidential nominees, voted for the bill. Sen. Joe Biden, the Democratic vice presidential nominee, also voted for the bill. Sen. Ted Kennedy, D-Mass., did not vote.

Small change at close masks volatility

The Senate vote came after another volatile day of trading on Wall Street.

The Dow closed down 20 points to 10,831. The S&P 500 was off 4 points to 1,161. The Nasdaq Composite Index was down 22 points to 2,069.

But those small changes hardly begin to tell the tale. Twice during the day, the blue chips had showed triple-digit losses. In fact, the Dow was down more than 210 points at 11 a.m. before starting to recover.

At the end of the day, the Securities and Exchange Commission extended a prohibition on short-sales of financial stocks, keeping restrictions on bets against companies' shares in place while Congress works on a $700 billion bailout plan.

The restriction will expire three days after lawmakers approve the financial rescue package, the SEC said. The short-sale prohibition will end no later than Oct. 17 if Congress fails to complete passage of the measure approved by the Senate tonight.

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Gains for financial stocks, which were higher in expectation that the Senate would approve the bill, were offset by weakness in energy, technology and, especially, industrial stocks, which were hammered by a dreadful report on the state of manufacturing generally and, later, terrible September sales for automakers.

Not only did the automakers have to cope with a weak economy and consumer reluctance to buy gas-guzzling vehicles. Now the credit crunch is making matters worse.

Ford Motor (F, news, msgs), Toyota Motor (TM, news, msgs) and Chrysler Group reported sales declines of 30% or more from September 2007. General Motors (GM, news, msgs) said its sales were down 19%. Honda Motor (HMC, news, msgs) reported a 24% sales decline.

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The companies said buyers are having problems in getting auto loans approved -- a function of the worsening credit crunch. The approval rate for auto loans has fallen this year to 63% of applications from nearly 83% last year, data from CNW Marketing Research show.

"Consumers and businesses are in a very fragile place," Ford marketing executive Jim Farley said. GM affirmed its fourth-quarter production target and rolled out new incentives.

The sales reports came after President Bush approved a $25 billion loan package that will help U.S. automakers convert to more fuel-efficient vehicles. The Energy Department will have 60 days to set regulations that will determine which automakers can get loans and when.

The financial aid package came before the automakers' awful September sales results.

Ford fell 12.5% to $4.55. Toyota fell 2.2% in New York to $83.90. GM was unchanged at $9.45. Honda dropped 1.7% to $29.60 in New York, and Nissan finished down 3.8% to $13.08.

Another sweet Buffett deal

The market got some good news when Warren Buffett made another splashy move.

Buffett's Berkshire Hathaway (BRK.A, news, msgs) will buy $3 billion in perpetual preferred stock from General Electric (GE, news, msgs). In addition, GE, a major component of the Dow Jones Industrial Average, said it will sell up to $12 billion in common stock to the public.

GE shares had been down as much 9.8% this morning after an analyst said the conglomerate may see less profit next year and the cost to insure its debt skyrocketed.

The Buffett news turned GE's share price around immediately before it started to sag again. The shares, which had been down as much as 15% in the morning, closed down 3.9% to $24.50. Berkshire Hathaway jumped 4.9% to $137,000.

Buffett's investment in GE has a 10% dividend and can't be called for three years. Buffett also gets warrants to buy $3 billion in GE common shares at a strike price of $22.25.

The deal is very similar to one that Buffett cut a week ago with Goldman Sachs (GS, news, msgs). Buffett bought another perpetual preferred stock and received warrants for more stock. Goldman used the prestige of having Buffett as a major investor to sell additional shares to the public.

Goldman shares were up 5.1% to $134.50.

Lilly is ImClone's secret suitor

Eli Lilly (LLY, news, msgs) is in advanced talks to acquire ImClone Systems (IMCL, news, msgs) for about $6.1 billion, The Wall Street Journal said tonight.

The pharmaceutical maker is the unnamed "large pharma company" that ImClone Chairman Carl Icahn has said was prepared to acquire the company for about $70 a share, pending a review of its books, The Journal reported. On Monday, ImClone set a deadline of midnight Wednesday for a deal but it was unclear whether an agreement with Lilly would be reached by then.
A formal offer by Lilly could prompt Bristol-Myers Squibb (BMY, news, msgs) to increase its offer for the company.

Bristol-Myers already owns about 17% of the biotech company and co-markets Erbitux, a lucrative cancer drug, with ImClone in the U.S. Bristol has already submitted an unsolicited $62-a-share bid of its own for ImClone.

ImClone was up 4.7% to $65.35 but was off 0.8% to $64.84 in after-hours trading. Lilly fell 0.8% to $43.69; Bristol-Myers Squibb was up 1.2% to $20.79.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$99.53	$100.64	-$1.11	-1.10%	3.70%
Heating oil (per gallon)	$2.8469	$2.8625	-$0.0156	-0.54%	7.45%
Natural gas (per million BTU)	$7.7280	$7.4380	$0.2900	3.90%	3.27%
Unleaded gasoline (per gallon)	$2.3600	$2.4000	-$0.0400	-5.02%	-5.25%

Manufacturing slows in September

A gloomy report on the manufacturing sector added more pressure to the markets this morning.

The Institute of Supply Management's manufacturing index fell to a reading of 43.5 in September, down from 49.9 in August. It was the biggest monthly decline since 1984.

The report signals a slowdown in the sector and adds to worries about the overall economic picture. Economists had been expecting a reading of 49.6.

Readings below 50 indicate contraction in the sector, while readings above 50 indicate expansion.

The weak data suggest "that the global economic slowdown is beginning to impact the U.S. export sector, which has held up extraordinarily well," Miller Tabak Chief Bond Strategist Tony Crescenzi wrote in a note this morning. The report indicates that the "U.S. economy is contracting . . . (and increases) the odds of more Fed rate cuts, including the possibility of an intra-meeting cut."

The Federal Open Market Committee's next meeting is at the end of this month.

Mortgage applications fall

The credit crunch is weighing more heavily on people who want to buy homes.

The Mortgage Bankers Association this morning said mortgage applications plunged 23% last week from the previous week. On a year-over-year basis, applications were down 28.4%.

The average rate for 30-year fixed mortgages slipped to 6.07% from 6.08% last week.

Homebuilding stocks were mostly higher. The reason wasn't lower rates but the hope for the rescue package passing.

The Philadelphia Housing Sector Index ($HGX.X) rose 0.9% to 131. Pulte Homes (PHM, news, msgs) jumped 9.1% to $15.24. D.R. Horton (DHI, news, msgs) rose 2% to $13.28.

Oil and the dollar

Crude oil fell $1.11 to $98.53 a barrel after gaining $4.27 on Tuesday. Oil was slammed Monday on concerns that the financial crisis will lead to a further slowdown in the global economy. While oil is down 31% from its record close of $145.08 set on July 11, it is still up nearly 25% from last year.

The dollar pulled back against the euro today -- trading at $1.4046 against the euro -- after several stellar days, as the prospect of economic turmoil has looked worse in Europe than in the U.S.

Four European financial companies have had to be rescued in recent days amid crises related to the mortgage-market mess. The problems are the same: Companies fall short of meeting collateral requirements on existing financing when accounting rules force them to mark down the value of mortgage-related securities. When the companies try to raise the money that they need to muddle through, fearful lenders and investors refuse to help, and governments have to step in to stave off general panic.

Worrisome jobs picture

Outplacement firm Challenger, Gray & Christmas released a report showing more job cuts and forecast a worsening outlook.

September layoffs rose 7.2% from August and 33% from last year, the report said. Through the first nine months of the year, companies have announced 763,090 layoffs -- 30% more than during the first nine months of last year.

"It may take several weeks or months for the fallout from September's Wall Street turmoil to hit the employment numbers," John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a prepared statement.

Economists are expecting a ninth straight month of job losses in the government's report Friday morning.

Google stock price snafu

Google (GOOG, news, msgs) slumped $58.01, or 15.2%, to $322.99 Tuesday.

Or did it?

This morning the Nasdaq said that the company's shares actually closed at $400.52 and that the earlier data were based on an "erroneous" trade. The Nasdaq canceled trades at or above $425.29 and at or below $400.52 that were executed between 3:57 p.m. and 4:02 p.m. E.T.

Google shares closed up 2.8% to $411.72 today.

Wal-Mart lowers holiday prices

The holiday season is quickly approaching, and Wal-Mart Stores (WMT, news, msgs) is already cutting prices.

The discount retailer said it will reduce prices on 10 toys to $10 each in 3,500 of its stores. Wal-Mart also said it will open Christmas shops within its stores in the next 10 days.

The holiday shopping season will likely be a difficult one for retailers and consumers alike. Many retailers have been hurt by the credit crunch, while consumers are watching their spending amid a slowing economy.

Many retailers are expected to lay off workers and close stores this holiday season.

"We are seeing a decrease in overall labor," Catherine Fox-Simpson, a partner at retail and consumer practice BDO Seidman, told MarketWatch.com. "You are going to see a lot more aggressive cost-cutting in the fourth quarter."

The holiday season traditionally accounts for as much as 40% of retailers’ annual sales.

The news did little for Wal-Mart shares, which finished down 0.4% to $59.66. Rival Target (TGT, news, msgs) fell 3.7% to $47.24. Costco Wholesale (COST, news, msgs), which has already put up holiday decorations in some of its stores, was down 0.4%, to $64.69.

Short hits from the markets -- 4 p.m.

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.800%	0.900%	-0.100	-11.11%	-74.52%
5-year Treasury note yield	2.888%	2.986%	-0.098	-3.28%	-16.41%
10-year Treasury note yield	3.768%	3.827%	-0.059	-1.54%	-6.62%
30-year Treasury bond yield	4.248%	4.305%	-0.057	-1.32%	-4.73%
Currencies
U.S. Dollar Index	79.535	79.360	0.175	0.22%	3.70%
British pound in dollars	$1.7734	$1.7841	-0.0108	-0.51%	-10.85%
Dollar in British pounds	£0.5639	£0.5605	0.0034	0.52%	12.17%
Euro in dollars	$1.4053	$1.4132	-0.0079	-0.34%	-3.85%
Dollar in euros	€ 0.7116	€ 0.7076	0.0040	0.34%	4.00%
Dollar in yen	105.78	105.97	-0.19	-0.24%	-5.43%
Canadian dollar in U.S. dollars	$0.942	$0.941	$0.0009	0.15%	-5.12%
U.S. dollar in Canadian dollars	$1.062	$1.063	-$0.0001	-0.13%	5.42%
Commodities
Gold	$887.30	$880.80	$6.50	0.74%	5.88%
Copper	$2.7895	$2.8790	-$0.09	-3.11%	-8.27%
Silver	$12.7700	$12.2750	$0.49	4.03%	-14.41%
Corn	$4.8400	$4.8400	-$0.04	-0.72%	6.26%
Crude oil (NYMEX) (per barrel)	$99.53	$100.64	-$1.11	-1.10%	3.70%