Wall Street tumbles on auto bailout concerns

The Dow Jones industrial average fell 196.33 points.

NEW YORK (AP) — Wall Street’s anxiety about Detroit automakers welled up Thursday, sending stocks sharply lower in an afternoon sell-off as investors grew fearful that a bill to rescue the companies wouldn’t make it through the Senate.

The pullback follows mostly moderate moves in stocks since mid-November and is a fresh reminder of investors’ fears about the economy.

Prospects for the $14 billion in loans to cash-starved General Motors Corp. and Chrysler LLC dimmed Thursday afternoon as opposition from both parties mounted.

Wall Street has been betting Washington would extend a lifeline to the automakers and even recovered early Thursday from a sell-off at the opening bell that followed weak readings on unemployment and the trade deficit. But the worries about the carmakers weighed on a market that managed to trade flat for much of the session.

“What we had was a little bit of a jumping of the gun, overreaction to the auto-rescue bill,” said Jon Nadler, senior analyst at Kitco Bullion Dealers Montreal. “The Dow tried to put a good face on things, but at the end of the day, reality set in.”

The Dow Jones industrial average fell 196.33, or 2.24 percent, to 8,565.09. The decline comes a day after the Dow added 70 points after a surge in gold and other commodities prices gave investors reason to snap up energy and materials stocks.

The Standard & Poor’s 500 index fell 25.65, or 2.85 percent, to 873.59, and the Nasdaq composite index fell 57.60, or 3.68 percent, to 1,507.88.

“What’s going to happen in the Senate is really weighing on the market in a big way,” said Dr. Robert Froehlich, chief investment strategist for DWS Investments. He contends that a failure of the auto bailout would trigger a sell-off similar to what occurred when a financial sector rescue plan didn’t make it out of Congress on the first try. The Dow Jones industrials tumbled 777 points on Sept. 29 as the plan failed an initial House vote.

Wall Street remains on edge, as was clear by Thursday’s pullback, but trading has been generally more orderly since the S&P 500 and the Dow hit multiyear lows on Nov. 20. Even some big moves in stocks in recent weeks don’t compare with the enormous swings in September and October.

One measure of unease in the market is still elevated but well off its highs. The Chicago Board Options Exchange Volatility Index, known as the VIX, is at 56. Ordinarily what’s known as Wall Street’s fear gauge might be in the 20s and 30s but it had near 90 in October.

Ed Hyland, global investment specialist for J.P. Morgan’s Private Bank, said investors are hoping the government’s medicine, from interest rate cuts to financial infusions in banks, will eventually help lift the economy but that it remain unclear how soon the economy will recover.

“There is still a high degree of uncertainty out there,” he said. “All you have to do is look at the Treasury market to get a gauge of how much fear there is in the overall investment community.”