NEW YORK - Wall Street's worst fears came to pass Monday, when the government's financial rescue plan failed in Congress and stocks plunged precipitously - hurtling the Dow Jones industrials down nearly 7 percent. The near 780-point decline was the largest one- day point drop ever for the index.

The percentage declines for the Standard & Poor's 500 and Nasdaq composite indexes were even larger. Credit markets, whose turmoil helped feed the stock market's angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.

Stunned traders on the floor of the New York Stock Exchange watched on TV screens as the House voted down in midafternoon the administration's $700 billion plan to buy up distressed mortgage securities. Activity on the floor became frenetic as the "sell" orders blew in.

The Dow told the story of the market's despair. The blue-chip index, dropped by hundreds of points in a matter of moments, and by the end of the day had passed by far its previous record for a one- day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.

The selling was so intense that just 162 stocks rose on the NYSE - and 3,073 dropped.

It takes an incredible amount of fear to set off such an intense reaction on Wall Street, and the worry now is that with the rescue plan's fate uncertain, no one knows how the financial sector, hobbled by hundreds of billions of dollars in bad mortgage bets, will recover.

Although investors didn't believe the plan was a panacea and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.

"Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that," said Chris Johnson president of Johnson Research Group. "This isn't a market for the timid."

The plan's defeat came amid more reminders of how troubled the nation's financial system is - before trading began came word that Wachovia Corp., one of the biggest banks to struggle due to rising mortgage losses, was being rescued in a buyout by Citigroup Inc. It followed the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies - Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc. All of them were felled by bad mortgage investments.

And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. has a list of more than 110 banks that were in trouble in the second quarter, and that number surely has grown in the third.

Evidence of the credit markets' ills could again be found Monday in the Treasury's three-month bill; investors were stashing money there, willing to take the tiniest of returns simply to be sure their principal would survive in what's considered the safest investment. The yield on the 3-month bill was 0.15, down from 0.87, and approaching zero, a level reached last week when fear was also running high.

On Wall Street, the Dow fell 777.68, or 6.98 percent, to 10,365.45. The decline also surpasses the 721.56-point intraday decline record also set during the first trading day after the terror attacks. Still, it was the 17th-biggest percentage decline for the Dow and remained well below the more than 20 percent drops seen on Black Monday of Oct. 19, 1987, and the Depression.

The Standard & Poor's 500 index fell 106.85, or 8.81 percent, to 1,106.42, it its largest-ever point drop and its biggest percentage loss since Black Monday.

The Nasdaq fell 199.61, or 9.14 percent, to 1,983.73, the third- worst percentage decline for the index.

Originally published by Tim Paradis Associated Press .

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