Stocks extend fall as Street weighs bailout plan

NEW YORK — Financial markets extended their declines Tuesday as investors worried that lawmakers were beginning to doubt the necessity of a broad government bailout for financial institutions as a way to revive ailing credit markets.

Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second-guessing from lawmakers than some investors had expected. The Dow Jones industrials, which had been higher for the first half of the session ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.

Still, trading appeared more orderly than Monday, when investors rushed into hard assets like oil and gold. Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short-term financial asset, while the dollar regained some ground after being hard hit Monday.

After days of intense gyrations in financial markets, investors are anxious about whether the plan to absorb bad mortgages and other risky assets will help steer the economy onto more solid footing — and also about resistance to the plan in Congress.

Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox testified before lawmakers, who are working alongside others in the Bush administration to complete the details of the bailout.

Traders grew nervous, and sent the stock market lower, as the officials faced questions about whether the government's planned response was appropriate. Sen. Chuck Schumer, D-N.Y., for example, asked whether $150 billion might be adequate to get the program started if investors were told more money could be added if necessary.

The market remains uncertain about how long it will take for the bailout plans to take effect, and assuming they do, how effective they will be.

"There's skepticism about whether the $700 billion number is the right number," said Jim Herrick, manager and director of equity trading at Baird & Co.

Bernanke told the Senate Banking Committee Congress risks triggering a recession if it doesn't act on the plan. He said inaction could leave a range of businesses unable to borrow the money while consumers could find it impossible to finance big purchases like cars and homes.

While financial markets showed uneasiness as investors listened to the testimony, there wasn't the level of fear and volatility that dominated Monday's trading.