NEW YORK (AP) - U.S. stocks headed for a partial rebound Tuesday, though financial markets remained troubled a day after the House voted down a proposed $700 billion rescue plan for the financial sector.
A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could spill through the economy. The failure of the House vote surprised Wall Street and triggered the biggest losses in stocks in years on Monday, driving up demand for safe-haven investments.
The stock market sell-off, when measured by the broad Dow Jones Wilshire 5000 Composite Index, reflected a paper loss of $1.2 trillion. So while a snapback of some degree wasn't unexpected as carnage on Wall Street often attracts bargain hunters, questions remain about how investors will proceed.
Without a bailout plan in place to absorb soured mortgage debt and other bad loans from banks' balance sheets, investors are wondering what might be able to restore confidence in lending.
While stocks might be signaling a rebound, moves in the credit markets were more ominous. The benchmark London Interbank Offered Rate, or LIBOR, that banks charge to lend to one another rose Tuesday, making it more expensive and difficult for consumers and businesses to borrow money.
In addition, more than half of adjustable-rate mortgages are tied to LIBOR, so an increase isn't welcome for many homeowners. LIBOR for 3-month dollar loans rose to 4.05 percent from 3.88 percent on Monday. LIBOR for 3-month euro loans, meanwhile, jumped to 5.27 percent, from 5.22 percent Monday.
Many on Wall Street had expected the plan would help sweep away some of the fear and pessimism that has hobbled credit markets, which are where businesses turn to finance their day-to-day operations. Some critics have said, however, that the plan was too costly and wouldn't have done enough to jump-start lending. While U.S. political leaders have vowed to revisit the issue, the House isn't slated to meet again until Thursday. President Bush said in a statement from the White House early Tuesday that the damage to the economy will be "painful and lasting" unless Congress passes the bailout measure.
Many traders likely will proceed cautiously while they gauge prospects for resurrecting the government's bailout effort, which was backed by leaders of both parties. And Tuesday brings the final session of the third quarter - and what is typically the worst month for the stock market - so some portfolio managers might try to do what they can to dress up their performance or could simply wish to dump holdings in an unpopular corners of the market like the financials. Dow Jones industrial average futures rose 126, or 1.20 percent, to 10,599 after falling more than 777 points, or nearly 7 percent, Monday to its lowest close in nearly three years.
It was the blue chips' largest point drop and 17th largest percentage drop. The percentage decline was far less severe than the 20-plus-percent drops seen in the stock market crash of October 1987 and before the Great Depression. Standard & Poor's 500 index futures rose 20.70, or 1.85 percent, to 1,139.50, and Nasdaq 100 index futures rose 24.25, or 1.60 percent, to 1,536.25. The yield on the 3-month Treasury bill rose to 0.56 percent from 0.14 percent late Monday.
The yield fell Monday as investors clamored for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.63 percent from 3.58 percent late Monday. The dollar rose against other major currencies, while gold prices rose. Light, sweet crude rose $1.23 to $97.60 in premarket electronic trading on the New York Mercantile Exchange. Oil fell more than $10 a barrel Monday as investors worried that a weaker economy would curtail demand.
On Tuesday, economic indicators could help shape sentiment. A reading of the Chicago Purchasing Managers' index, which measures business conditions across Illinois, Michigan and Indiana, is due shortly after the opening bell, as are figures on consumer confidence. The "sell" orders that swept across Wall Street on Monday spread to parts of Asia.
Japan's Nikkei stock average fell 4.12 percent. But Hong Kong's Hang Seng index rose 0.76. In afternoon trading, Britain's FTSE 100 rose 0.03 percent, Germany's DAX index fell 0.69 percent, and France's CAC-40 rose 0.53 percent.
(Copyright 2008 by The Associated Press. All Rights Reserved.)
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