Futures pointed to a lower open on Wall Street but shaved about 20 points off the morning decline as investors welcomed news that Citigroup is acquiring most of Wachovia's assets and that no federal bailout was necessary.
Still, there was a lot of worry in the market as cracks started to show in the global financial system and as the market awaits votes in the House and Senate on the Wall Street bailout bill.
Veteran trader Art Cashin told CNBC this morning that he learned early on in his career never to bet on the end of the world — it only happens once.
Still, he said, "It might not be a bad idea to find a bomb shelter somewhere."
Encouraging words as we strap in for what will likely be a wild ride on Wall Street today.
Citigroup will be buying Wachovia's banking operationsin a deal facilitated by the FDIC,after engaging in a brief bidding war with Wells Fargo.
Wachovia shares crumbled premarket, falling more than 80 percent, while Citi fell about 7 percent.
Federal Reserve Chairman Ben Bernanke said early Monday that he welcomed the deal as well as the financial-system bailout hammered out by Congress this weekend. He commended the FDIC for its timely action, saying it shows the government's commitment to economic stability. He also said he looks forward to swift passage of the bailout legislation.
Congress held marathon weekend talks on a Wall Street bailout, with leaders from both sides emerging after midnight Saturday night/early Sunday with a tentative agreement that altered key parts of a Wall Street bailout program initially proposed by the Bush administration, taking some of the burden off of taxpayers.
The proposed legislation would disburse the $700 billion in stages. The first $250 billion would be issued when the legislation is enacted, while another $100 billion could be spent if the president decided it was needed. The remaining $350 billion would be subject to congressional review.
As investors hope a $700 billion bailout package will save the U.S. banking sector, House Republicans are seen as the main sticking point to the passage of the bill, balking at spending so much public money just before elections in November.
But senior Republican Sen. Judd Gregg of New Hampshire threw his weight behind the deal, saying he expected the House to vote on the bill on Monday.
Later on Monday, hedge-fund managers will have to disclose their short positions to regulators, a move set to give a rare public glimpse into their secretive trading strategies two weeks later.
As the U.S. government worked overtime to shore up its financial system, cracks started to show in the world financial sector as two European banks were nationalized in two days and central banks threw money at banks trying to persuade them to lend to each other.
In Britain, mortgage lender Bradford & Bingley became the second British bank to be taken under the government's wing since the crisis began last year.
Fortis is the first major euro zone bank to buckleunder the financial turmoil triggered in August last year by U.S. mortgage defaults, and an early relief rally in markets at news of progress in Washington soon fizzled out.
And shares in French bank Dexia tumbled more than 20 percent on a newspaper report that it might launch an emergency capital increase.
Outside the financial sector, shares of Pilgrim's Pride were poised to recover some value after plunging 72 percent last week. The stock fell on warnings that earnings would take a hit because of restricted access to credit, a forecast seen as indicative of problems in the industry itself.
But shares gained more than 15 percent premarket after Pilgrim's Pride said it received a temporary waiver on a credit covenant and retained advisers to review its operations and refinancing strategy. The waiver will help provide liquidity.
Circuit City shares tumbled 10 percent pre-market after the electronics retailer reported a wider quarterly loss and withdrew its financial outlook. The company, which last week announced the immediate departure of its chairman and CEO, also said it would suspend new store openings beginning in fiscal 2010 in order to focus on turning around the business. Circuit City has reported losses for five of the past six quarters.
In economic news, personal spending was unchanged in August, shy of the 0.2-percent increase economists had expected. Income climbed 0.5 percent, topping the 0.2 percent expected.