Following Monday's broad sell-off, investors focused Tuesday on the Senate Banking Committee's hearing on the Bush administration's financial rescue plan, featuring testimony from Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and Securities and Exchange Commission Chairman Christopher Cox. Paulson and Bernanke urged Congress to act quickly to put the bailout in place, warning a delay would put the economy at risk. But investors demonstrated nervousness as details of the plan ran into skepticism from lawmakers.

On Tuesday, selling picked up in the last hour of trading, sending the blue-chip Dow Jones industrial average down 161.52 points, or 1.47%, to 10,854.17. The biggest losers in the Dow were General Motors (GM), down 7.4%, and General Electric (GE), which dropped 4.6%.

The broader S&P 500 index fell 18.87 points, or 1.56%, to 1,188.22. The tech-heavy Nasdaq composite index lost 25.64 points, or 1.18%, to 2,153.34 despite gains by Google (GOOG) and other tech stocks.

On the New York Stock Exchange, 23 stocks were lower in price for every 9 that posted gains, The ratio on the Nasdaq was 19-9 negative.

Bonds were mixed. The dollar index edged higher. Gold and oil futures closed lower.

Initial stock-market gains gave way to nervousness Tuesday after Paulson's plan ran into much second-guessing from lawmakers.

Bernanke made a strong emotional case for addressing the financial sector problems, reports Action Economics. He painted a bleak picture for the U.S. economy if the Treasury's plan is not effected quickly. The markets are not serving the necessary functions of the economy, he noted, and if liquidity isn't restored, more jobs will be lost, the unemployment rate will rise, the housing market will see more foreclosures, and GDP will contract.

Bernanke also explained that the $700 billion price tag for the rescue plan is not an expenditure of that size, but a purchase of assets, and he believes most, if not all the value could be recovered, and taxpayers will get 'good value" for the money spent.

"This was the most forceful we've seen the Fed chief in Congressional testimony," wrote Action Economics analysts in a website posting Tuesday.

Paulson also made a strong case for the TARP plan, repots Action Economics. noting that until the housing sector stabilizes, there is no way for the financial system to recover. He expressed anger and shock about the situation, but the main problem when he took over was the flawed regulatory system which was structured for another era. Paulson noted that thousands of banking institutions may participate in the bailout, including foreign banks.