More anxiety on Wall St.: Stocks dive, oil soars

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(Agencies)
Updated: 2008-09-23 09:03

NEW YORK - Elation in the financial markets over the $700 billion bank bailout plan evaporated Monday and was replaced by all-too-familiar anxiety, pummeling stocks and sending oil prices to their biggest one-day gain. Worries that the rescue package would cost too much, drive up inflation, swell the already-bloated deficit and hurt the ailing economy also led global investors to flee the US dollar.

Traders in the oil options pit work at the New York Mercantile Exchange. Crude prices soared over 20 percent Monday, the biggest ever one-day gain on record. [Agencies]

The Dow Jones industrials lost 372 points, wiping out the gains the index made Friday after administration officials and congressional leaders promised swift action to get bad debt off the books of banks and end the financial crisis.

"Investors had a weekend to look at the news that was streaming out, and they are now finding fault in it," said Joseph Battipaglia, market strategist in the private client group at the investment firm Stifel Nicholaus.

Oil prices briefly spiked more than $25 a barrel before falling back to settle at $120.92, up $16.37, on the New York Mercantile Exchange. That shattered the previous record for a one-day jump in crude oil, $10.75.

Monday was also the last day for investors to trade the October oil futures contract, adding fuel to the rally. But the November contract also saw a sharp gain, up $6.62 to $109.37.

The government agency that regulates commodities markets said it was working with Nymex to "ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain."

The Commodity Futures Trading Commission said in a statement it was "closely monitoring today's large movement in the price of crude oil."

Analysts said some of the gain could have come from large investors trying to cover short positions, or bets that prices would fall.

Four days after word of a massive government rescue plan began to hit the market, investors had little by way of details. Treasury Secretary Henry Paulson introduced the plan Saturday in a document that ran less than three full pages.

By Monday, investors still knew little about how the Bush administration would pay for mopping up the bad debt, how the process would work, who would run it and what the Democratic-controlled Congress would ask for to approve the plan.

The Bush administration is already forecasting that the federal deficit will hit a record $482 billion next year. Analysts say the bailout costs mean a $1 trillion annual deficit is not out of the question.

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