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Dow Skids Nearly 400 After Bailout Is Revealed

Tuesday, 10 Feb 2009 | 5:21 PM ET

US stocks fell sharply Tuesday in a broad-based decline as the government announced details of its latest bailout plan.

The Dow Jones Industrial Average lost 381.99, or 4.6 percent, to close at 7,888.88 after Treasury Secretary Tim Geithner revealed details of the bank-bailout plan. Earlier, the blue-chip index was down less than 100 points.

The S&P 500dropped 4.9 percent, andthe Nasdaq shed 4.2 percent.

The "Financial Stability Plan," as it's now called, consists of four main components:

1) It will set up a public-private fund to mop up to $500 billion of spoiled bank assets.

2) It will set up a consumer-lending facility to support up to $1 trillion in new lending.

3) It will devote up to $50 billion to help stem home foreclosures.

4) It will provide new funding to banks after a "stress test" to determine if the bank is healthy.

Some market pros said the market selloff was simply a case of 6

buy on the rumor, sell on the news

.

But others said some of what Geithner said rattled the market, too.

Particularly, the part about the stress test, which stirred up worries about the dreaded "D" word, dilution, of bank stocks.

Legendary investor Jim Rogers told CNBC the plan wasn't just ineffective, it could even make things worse. The bailout will plunge the US further into debt and it is designed by the same people who failed to forecast the crisis in the first place, Rogers said.

>> Poll: Will geithner's Plan Work? Vote Now.

In economic news, wholesale inventories fell 1.4 percent in December, the steepest drop in 16 years, after a downwardly-revised 0.9-percent decline in November.

Banks shares retreated, with Bank of America and Citigroup leading the Dow lower, down 19 percent and 15 percent, respectively.

All 30 Dow stocksfinished lower.

Hartford Financial shares dropped 13 percent after the property and life insurer's credit rating was cut. Rival MetLife declined 12 percent.

Investors were encouraged by the latest sign of thawing in the credit market: Ciscosold $4 billion in bonds.

The Wall Street Journal reported today that Cisco was the latest in a string of companies to successfully tap the corporate-debt market.

Intel gave techs a brief boost after the chip giant announced plans to pump $7 billion into upgrading its U.S. factories.

But it wasn't clear if the Intel move would actually create many new jobs and a reminder of the current economic condition wasn't far away as a fresh wave of layoffs swept through the market.

Intel ended down 5.6 percent, while Cisco shed 4.8 percent.

General Motors shares fell 4.6 percent after the auto maker said it will lay off 10,000 salaried workers, or 14 percent of its global work force, in order to get costs under control to meet government mandates for its bailout.

Federal Express shares fell 6.5 percent after the package-delivery giant announced plans to slash 900 jobs, or about 2.5 percent of its freight division.

And UBS is axing 2,000 more jobsafter earning the distinction of posting the biggest loss for a Swiss corporation ever. Still, UBS shares jumped after the bank announced it had inflows in January after a long period of outflows, indicative to some analysts that it was beginning to rebound. American depositary shares of UBS climbed 1.5 percent.

Shares of Qwest Communications advanced 2.4 percent as the company reported its profit fell 49 percent but beat expectations.

Boeing shares skidded 6.1 percent after the aerospace giant said that the falling value of its planes meant its fourth-quarter net loss was four cents a share wider than it reported late last month. Another flurry of earnings is due before the bell.

This Week:

WEDNESDAY: House hearing with TARP CEOs; Weekly mortgage applications; international trade; weekly crude inventories; Fed's Evans speaks; Earnings from Ingersoll-Rand, Sanofi-Aventis
THURSDAY: Retail sales; weekly jobless claims; business inventories; Earnings from Coca-Cola, Aetna, Marriott and Viacom
FRIDAY: G7 finance ministers meet in Rome; Consumer sentiment; Earnings from Pepsi

Send comments to cindy.perman@nbcuni.com.

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