Auto aid worries drag down stocks

Stocks fell sharply Thursday on fears -- ultimately confirmed -- that a bill to rescue two Detroit automakers would die on Capitol Hill.

The pullback followed mostly moderate moves in stocks since mid-November and was a fresh reminder of Wall Street’s fears about the economy.

Prospects for the $14-billion in loans to cash-starved General Motors and Chrysler dimmed during trading Thursday as GOP opposition in the Senate hardened. Ultimately, proponents fell seven votes short of what they needed to move forward with the measure.

The House had approved a plan late Wednesday on a vote of 237 to 170 to infuse money within days to the two struggling automakers. Ford Motor has said it does not need aid.

Stocks slumped at the opening bell Thursday after the government reported a surprise jump in weekly unemployment claims but recovered to trade flat for much of the session until anxiety about the auto bailout sent share prices tumbling.

Financial stocks, however, led the way down on worries about their balance sheets after US Bancorp warned that in the current quarter it would designate as much as $650 million in loans as uncollectable.

An index of financial shares lost 8.5%. US Bancorp fell 10%, while JPMorgan Chase and Wells Fargo declined 11%.

The Dow Jones industrial average slid 196.33 points, or 2.2%, to 8,565.09. The decline left the blue chips with a 0.8% loss for the week going into Friday’s session.

The broader Standard & Poor’s 500 index dropped 25.65 points, or 2.9%, to 873.59, and the Nasdaq composite index sank 57.60 points, or 3.7%, to 1,507.88.

The Russell 2,000 index of smaller-company stocks tumbled 5.3% as investors looked for the safety of larger companies expected to fare better in a weak economy.

Declining issues on the New York Stock Exchange outnumbered advancers by more than 3 to 1.

Even with Thursday’s pullback, the Dow is up 13% since hitting a multiyear low Nov. 20, while the S&P; 500 is up 16%.

Some energy stocks advanced Thursday as oil prices surged after Saudi Arabia said it made good on promises to cut output and Russia said it might do the same.

Oil futures jumped $4.46 to settle at $47.98 a barrel on the New York Mercantile Exchange.

Shares of Chevron advanced 1.3%, while Hess climbed 6.8%.

Auto stocks dropped on the anxiety over the proposed bailout. GM fell 48 cents to $4.12, while Ford dropped 35 cents to $2.90. Chrysler isn’t publicly traded.

Robert Froehlich, chief investment strategist for DWS Investments, said the uncertainty over the auto bailout bill was “weighing on the market in a big way.” He predicted that the markets might react like they did when the government’s $700-billion financial sector rescue didn’t make it out of Congress on the first try.

The Dow tumbled 777 points Sept. 29 as the plan failed an initial House vote.

The dollar was mostly lower against other major currencies, while gold rose.

Overseas, key stock indexes rose 0.7% in Japan and 0.5% in Britain. Shares fell 0.8% in Germany and 0.4% in France.