U.S. stocks sold off today as Treasury Secretary Henry Paulsons proposed $700 billion bailout of the U.S. financial system raised concern about the exploding federal deficit, sending the dollar on a steep decline and crude oil prices on a strong rebound.
The Dow Jones industrial average closed down 372.75, or 3.27%, at 11,015.69; the S&P 500 fell 47.99, or 3.82%, ending at 1,207.09; and the Nasdaq composite closed down 94.92, or 4.17%, at 2,178.98. All numbers are preliminary.
The dollar fell to $1.4811 vs. the euro in late trading today. It had been changing hands at $1.4196 late Thursday, just hours before Mr. Paulson unveiled his plan, and at $1.4378 late on Friday before the actual size of the bailout was announced. Todays decline was the largest one-day drop for the dollar since the euro was launched in 1999.
In a related move, oil prices shot up nearly 16% on the New York Mercantile Exchange where the light sweet crude contract for October delivery closed at $120.92 a barrel, the largest one-day gain since Nymex started trading oil in 1984. Also on Nymex, gold futures for December delivery jumped 5% to $909 an ounce after gaining 13% last week.
A poll conducted overnight by Rasmussen Reports found that only 36% of investors surveyed support the federal bailout plan, while 36% oppose it and 28% are undecided.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., readied an alternative proposal today that would give the Treasury Department an equity stake in the companies it rescues.
Financial issues posted losses across the board as the two remaining Wall Street investment banks, Goldman Sachs Group Inc. and Morgan Stanley, decided to become bank holding companies amid the mortgage crisis.
Several ETFs that track various segments of the financial sector posted losses of between 5% and 7%. The exchange sector was mired in red as the expected curtailed market role of the five major Wall Street firms is bound to lower trading volume.