Financial markets remained tense Friday after the Bush administration's proposal for a $700 billion banking bailout ran into opposition from Republican lawmakers. Stocks ended mixed, with big financial companies lifting the Dow Jones industrials more than 120 points, but worries about smaller banks and parts of the technology sector taking much of the market lower. The uncertainty also sent the price of gold jumping.
"I think the markets are on pause trying to figure out where this is going to go. Congress is still there," said Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas. "Right now everyone is a little bit shellshocked."
Demand for safe-haven buying in government debt remained high as investors uneasily watched events in Washington, where the Bush administration tried to overcome Republican objections to its rescue package.
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"We have a lot of folks who say we are looking at financial catastrophe on the one hand, but we may be looking at national bankruptcy and the road to socialism on the other," said Representative Jeb Hensarling of Texas, reports the New York Times.
Though the impasse appears set to carry through the weekend, Sen. John McCain has decide to take part in this evening's presidential debate with opponent Barack Obama.
McCain "is optimistic that there has been significant progress toward bipartisan agreement now that there is a framework for all parties to be represented in negotiations," the candidate announced via a statement.
President Bush has said at the White House lawmakers can express doubts but ultimately should "rise to the occasion" and approve a plan to stave off what he sees as an economic calamity.
The rescue is designed to remove billions of dollars of bad mortgages and other now-toxic assets from the books of financial firms in a bid to free up lending. Tight lending conditions make it harder and more expensive for businesses and consumers to borrow money, a headwind for the economy. In a last-minute shake up, some Republican lawmakers wanted 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.
Credit markets remained strained, though they showed improvement. The yield on the 3-month Treasury bill, considered the safest short-term investment, rose to 0.84 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 at times willing to take the slimmest returns to preserve their principal. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.85 percent from 3.84 percent late Thursday.
According to preliminary calculations, the Dow rose 121.07, or 1.10 percent, to 11,143.13. Gains by JPMorgan Chase & Co. and Bank of America Corp. gave support to the 30-stock index. Most of their advance came late in the session as investors placed bets that a deal would emerge from Washington over the weekend.
Broader indicators were mixed. The Standard & Poor's 500 index rose 4.09, or 0.34 percent, to 1,213.27, and the technology-heavy Nasdaq composite index fell 3.23, or 0.15 percent, to 2,183.34.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.17 billion shares.
Gold prices briefly jumped above $920 an ounce Friday as a stalled plan to bail out the U.S. financial system unnerved investors and prompted a flight into safe-haven assets. Silver also rose.
"There's still tension in the market and that's supporting gold," said Carlos Sanchez, analyst with CPM Group in New York. "Everybody wants to know what's going to happen from here. Are corporate profits going to deteriorate? Is inflation going up? Will credit stay tight? Nobody knows."