* U.S. stocks plunge after bailout vote in Congress fails
* U.S., euro zone government debt soar in flight to safety
* Oil falls to below $99 a barrel on slower growth outlook
* Gold jumps about 3 percent
(Adds vote in U.S. Congress)
By Herbert Lash
NEW YORK, Sept 29 (Reuters) - U.S. stocks plunged on Monday
after U.S. lawmakers rejected a $700 billion financial system
bailout and major U.S. and European banks needed emergency
deals to stave off collapse, sending investors fleeing to the
safety of gold and debt.
The Dow fell more than 700 points, its biggest intra-day
decline on record, as the U.S. House of Representatives
rejected a bailout bill. The proposal would have authorized the
U.S. Treasury Department to spend up to $700 billion to buy
tainted assets from banks.
The bill was defeated by skeptics from both parties who
questioned the need for it and whether it would work to
jump-start stalled capital markets around the world.
"Complete disaster was predicted if it didn't pass, and it
didn't pass. Everybody was expecting it to pass and it didn't
pass. I can't see what the upside is right now," said Stephen
Berte, senior equity trader at Standard Life in Boston.
The Nasdaq was on course for its biggest one-day slide
since markets reopened after the attacks of Sept. 11, 2001.
The plunge in equity markets sparked a rally in government
debt, with the 30-year Treasury bond on track for its biggest
gain since Sept. 15 when Lehman Brothers Holdings Inc filed for
bankruptcy.
"We are in a situation where the market is looking around
and saying what else can the government throw at us, and it is
not much else right now," said Rudy Narvas, senior analyst at
4cast Ltd in New York.
At 2:30 p.m. (1830 GMT), the Dow Jones industrial average
<> was down 448.90 points, or 4.03 percent, at 10,694.23.
The Standard & Poor's 500 Index <.SPX> was down 65.26 points,
or 5.38 percent, at 1,147.75. The Nasdaq Composite Index
<> was down 126.04 points, or 5.77 percent, at 2,057.30.
Before the vote, the euro and sterling tumbled against the
dollar and crude oil prices dropped nearly 8 percent to below
$99 a barrel on signs the crisis was spreading beyond the
United States to Europe and would cut energy demand worldwide.
U.S. and euro-zone government debt soared in one of the
biggest rallies for fixed-income securities this year as fears
of spreading bank failures overshadowed moves by central banks
to pump hundreds of billions of dollars into frozen markets.
Gold briefly jumped 3 percent, and aversion to risk boosted
the low-yielding Japanese yen as investors flocked to their
safe-havens amid heavy losses in global equity markets.
Germany's central bank said it will hold onto the vast bulk of
its gold reserves in the next 12 months, which contributed to
gold's rise.
The leading index of European shares fell more than 5
percent to a three-and-a-half year closing low. Banking shares
weighed on the index amid growing fear about the health of the
financial industry on both sides of the Atlantic.
"Investors are fearful, frenetic, especially when it comes
to banking shares. They want to get out now and see the
after-effects from afar," said Frank Geilfuss, head analyst at
Bankhaus Loebbecke.
European authorities were forced over the weekend to rescue
a slew of European banks, while U.S. regional bank Wachovia
Corp <WB.N> sold most of its assets to Citigroup <C.N> in a
deal brokered by the Federal Deposit Insurance Corp.
Global money markets remained frozen even as central banks,
including the Federal Reserve, pumped $330 billion into world
markets in an attempt to boost liquidity.
"We started Monday with more fear than when we left on
Friday," said Eric Kuby, chief investment officer of North Star
Investment Management Corp in Chicago.
Signs of the potential impact of the financial crisis could
be seen in the stock of Apple Inc <AAPL.O>, whose shares fell
as much as 17.5 percent on concerns that the maker of the iPod
and iPhone will suffer as economic growth slows.
In Europe, the British government took over troubled
mortgage lender Bradford & Bingley <BB.L> and three European
governments partially nationalized banking and insurance group
Fortis <FOR.BR><FOR.AS>. Germany's government threw a lifeline
to cash-strapped lender Hypo Real Estate <HRXG.DE>.
The FTSEurofirst 300 index <> of leading European
shares ended down 5.23 percent at 1,047.04 points -- its lowest
closing level since January 2005.
The benchmark, down about 27 percent this year, also
notched its biggest one-day percentage decline since Jan. 21.
European government bonds surged, pushing the two-year
yield to a five-month low.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
2-2/32 to yield 3.63 percent, and the 2-year U.S. Treasury
note<US2YT=RR> gained 1-8/32 to yield 1.7 percent.
The euro fell nearly 2.0 percent against the U.S. dollar at
one point, but later pared losses. Sterling dropped to a 10-day
low at $1.7962 <GBP=>, and was last down more than 2 percent at
$1.8028, its biggest one-day loss since December 1996.
The euro <EUR=> fell 1.45 percent at $1.4401, while against
the yen, the dollar <JPY=> fell more than 1 percent at 104.27.
The U.S. Dollar Index <.DXY> rose 0.31 percent at 77.528.
MSCI's all country world equity index <.MIWD00000PUS>
plunged 4.7 percent, putting it on track for the biggest
one-day loss in at least 20 years.
MSCI's emerging markets stock index <.MSCIEF> dropped 6
percent while yield spreads widened by 21 basis points to 400
basis points between U.S. Treasuries and emerging market
sovereign bonds, indicating low risk appetite.
U.S. light sweet crude oil <CLc1> fell $10.52 to $96.38 a
barrel, while London Brent crude <LCOc1> traded down $9.80 to
$93.74 a barrel.
Spot gold prices <XAU=> rose $29.30 to $917.60 an ounce.
Asian stocks fell 2 percent overnight on questions about
the effectiveness of the U.S. government plan for the financial
system.
Japan's Nikkei share average <> declined 1.3 percent
and the MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> fell 2 percent.
(Reporting by Kristina Cooke, John Parry, Nick Olivari,
Christopher Kaufman and Fank Tang in New York and Naomi
Tajitsu, Jane Merriman and Alex Lawler in London and Sarah
Marsh in Frankfurt; Writing by Herbert Lash; Editing by Tom
Hals)
