updated 10/6/2008 7:24:20 AM ET 2008-10-06T11:24:20

Wall Street ended an intensely volatile week with another sell-off Friday while credit markets remained strained after enthusiasm over the government’s $700 billion financial rescue plan gave way to worries about obstacles still facing the economy. The Dow Jones industrials fell 157 points, and all the major indexes finished the week with big losses.

Major Market Indices

Investors dumped stocks late in the session after a big rally earlier in the day, repeating a defensive move seen throughout the yearlong market pullback. As lawmakers voted on the plan, which President Bush quickly signed into law, the Dow advanced more than 300 points. After it passed, the blue chips moved in and out of positive territory before ending down more than 150 points.

Investors had been anxious for resolution on the government’s plan to buy up bad assets from banks and other institutions to shore up the financial industry and help resuscitate credit markets. Trading across markets was turbulent throughout the week as investors tried to determine whether the plan would win approval and what effect it might have. On Monday, the House’s rejection took Wall Street and Capitol Hill by surprise and handed stocks their biggest losses in years.

The Senate subsequently passed a sweetened version of the plan that added tax breaks and raised the limit on federal deposit insurance from $100,000 to $250,000.

But Wall Street has come to realize passage of the plan is not a quick fix.

“We’re three weeks into a severe credit crunch and it’s causing untold economic damage to the country,” said Hank Smith, chief investment officer at Haverford Investments. He said while the bill’s passage will help Wall Street, the broader effects of the paralysis in the credit markets has yet to emerge.

“It’s fairly reasonable to assume that this should help unfreeze the credit markets but what we don’t know is what’s happened so far. How much of a dent has it put into the economy?”

The credit markets indicated increased demand for safety. The yield on the three-month Treasury bill, the safest type of investment, fell to 0.49 percent from 0.70 percent late Thursday. Yields have remained low in recent weeks because investors are eager to safeguard their money.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.61 percent from 3.64 percent late Thursday.

The Dow fell 157.47, or 1.50 percent, to 10,325.38 after rising more than 310 points.

Broader stock indicators also ended lower. The Standard & Poor’s 500 index fell 15.05, or 1.35 percent, to 1,099.23, and the Nasdaq composite index fell 29.33, or 1.48 percent, to 1,947.39.

The Russell 2000 index of smaller companies fell 18.27, or 2.87 percent, to 619.40.

Wall Street’s decline Friday capped an extraordinary week. On Monday, the Dow tumbled 778 points after the House voted down the financial rescue plan. Then stocks enjoyed a snapback rally Tuesday as investors grew more confident that Washington would assemble some kind of aid; the Dow jumped 485 points. Stocks showed mostly modest moves Wednesday as investors waited for the Senate to take up the bill. Then two-day pullback Thursday and Friday left stocks with huge losses for the week. The Dow lost 7.34 percent, the S&P 500 fell 10.8 percent and the Nasdaq declined 9.38 percent.

Outside the New York Stock Exchange, traders said the late pullback Friday reflected a pessimism of the past year that there was little underpinning most rallies and therefore it was prudent to lock in profits when possible.

Other traders agreed.

“You’re probably seeing a little buy the rumor, sell the news mentality,” said Ryan Larson, senior equity trader at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher. Plus, he added, there’s a feeling that this plan “isn’t a quick fix.”

“There are still a lot of problems out there,” Larson said.

The bill’s approval came as investors digested word that Wells Fargo Co. agreed to buy Wachovia Corp. in a $15.1 billion deal. That cheered Wall Street because, unlike several recent banking tie-ups, it wasn’t put together at the behest of regulators or using government money. The agreement upends a plan announced Monday by Citigroup Inc. to acquire Wachovia’s banking operations for $2.16 billion, a move orchestrated by the Federal Deposit Insurance Corp. However, Citigroup was demanding that Wachovia honor its agreement. The FDIC said it is standing behind the agreement it made with Citigroup.

Wachovia shareholders will receive 0.1991 share of Wells Fargo for every share of Wachovia they hold, valuing Wachovia at about $7 a share. The deal represents a nearly 80 percent premium to the stock’s close of $3.91 on Thursday. The stock finished last week at $10, before the deal with Citigroup was announced.

Wachovia shares rose $2.30, or 58 percent, to $5.21, while Wells Fargo fell 60 cents, or 1.7 percent, to $34.56. Citigroup fell $4.15, or 18 percent, to $18.35, making it by far the steepest decliner among the 30 stocks that make up the Dow industrials.

Investors also appear relieved that the government’s September employment report wasn’t worse, although the Labor Department said payrolls shrank by 159,000, more than the 100,000 economists predicted. The nation’s unemployment rate remained flat at 6.1 percent, as expected.

Investors also appeared pleased by a report that the nation’s service sector was slightly stronger than expected last month. The Institute for Supply Management, a trade group of purchasing executives, said its service sector index slipped to 50.2 in September from 50.6 in August. However, the number came in ahead of the reading of 50 that economists had expected, according to Thomson/IFR. A reading above 50 signals growth, while a reading below 50 indicates contraction.

The dollar was mostly higher against other major currencies, while gold prices fell.

Light, sweet crude fell 9 cents to settle at $93.88 on the New York Mercantile Exchange.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 1.42 billion shares.

Overseas, Japan’s Nikkei stock average fell 1.94 percent. Britain’s FTSE 100 rose 2.26 percent, Germany’s DAX index rose 2.41 percent, and France’s CAC-40 rose 2.96 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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