* U.S. House of Representatives approves bailout plan
* Bailout plan passage prompts U.S. stock profit taking
* Wells Fargo buying Wachovia for roughly $16 billion
* U.S. job rolls suffer deepest cut in 5-1/2 years in Sept
(Updates with new headline, closing prices, analyst comment)
By Daniel Bases
NEW YORK, Oct 3 (Reuters) - Investors cut into a global
stock market rally on Friday after the U.S. House of
Representatives approved a $700 billion financial rescue plan,
taking profits in a classic "buy the rumor, sell the news"
move.
Uncertainty still dominated market psychology after the
bill passed and U.S. President George W. Bush swiftly signed it
into law. The Dow Jones industrial average had its worst week
since July 2002 while the Standard & Poor's 500 and Nasdaq
stock indexes recorded their worst weeks since September 2001.
A U.S. dollar rally also fizzled, but the greenback saw its
best week in 16 years against a basket of currencies and versus
the euro since its launch in 1999.
U.S. and European stocks had risen ahead of the expected
passage of the legislation. A $16 billion purchase of troubled
bank Wachovia Corp <WB.N> by Wells Fargo <WFC.N> also helped
enliven sentiment and offset the biggest drop in U.S. payrolls
in 5-1/2 years.
"It was expected to pass so from an equities perspective it
was sort of 'buy the rumor, sell the news'," said Carl Lantz,
U.S. interest rate strategist at Credit Suisse in New York.
"Now we're back to the situation of, 'Is it enough? Is it
going to work? Are people going to use it?'," he said.
The House passed the bill by a vote of 263-171 and
President Bush quickly signed it, ending two weeks of haggling
in Congress that roiled and captivated global markets.
An earlier attempt by the House on Monday to pass the bill,
meant to underpin banks and other financial firms straining
under bad mortgage-related assets, had failed and sent stocks
careening lower.
"We're still in the thick of this. It is like turning a
cruise ship. You can't do it on a dime," said Joe Saluzzi,
co-manager of trading at Themis Trading in Chatham, New
Jersey.
It was Wells Fargo's offer to buy Wachovia that gave a shot
of optimism to investors that business was still getting done
in the financial industry. Stocks rose in Europe and put the
U.S. markets on solid footing at the open of trade. Asia's main
stock markets had closed lower before the deal was announced.
In the U.S. stock market, benchmark indexes fell. The Dow
industrials <> lost 157.47 points, or 1.50 percent, at
10,325.38. At its peak, the Dow was up 313 points. For the week
the index lost 818 points, or 7.35 percent.
The S&P 500 Index <.SPX> fell 15.05 points, or 1.35
percent, at 1,099.23. For the week, the index dropped 9.38
percent, or 113.78 points.
The Nasdaq Composite Index <> dropped 29.33 points, or
1.48 percent, at 1,947.39. For the week the Nasdaq lost 10.81
percent, or 235.95 points, its worst week since Sept. 2001.
European share prices closed with solid gains before the
bill passed. The FTSEurofirst 300 index <> closed up 3.01
percent on the day. On the week, the index lost 1.4 percent.
MSCI's main world equity index fell 0.48 percent on Friday
<.MIWD00000PUS>.
Japan's Nikkei 225 index <> fell 1.94 percent to a
three-year closing low for its worst week in more than a year.
GRIM ECONOMIC DATA
As the world's focus has been on the U.S. Congress, new
data revealed America's economy continues to slow. On Friday,
the Labor Department reported 159,000 nonfarm jobs were lost in
September, a ninth straight monthly contraction, while the
unemployment rate held at a five-year high of 6.1 percent.
"We've seen weaker data in history, but these look pretty
decisively to be the beginning of something worse," said Pierre
Ellis, senior economist at Decision Economics Inc in New York.
A second gloomy piece of economic data showed America's
dominant service sector economy barely grew in September.
The Institute for Supply Management's non-manufacturing
index came in at 50.2, marginally above the level of 50 that
signals expansion, aided by a slight rise in new orders. The
index was 50.6 in August.
Government bonds, which usually benefit from grim economic
data, were overtaken by events and fell as stock prices rose.
Benchmark 10-year U.S. Treasuries cut a near 1-point loss
in price to a 2/32 point gain, yielding 3.616 percent
<US10YT=RR>.
U.S. interest rate futures nearly price in a
half-percentage-point cut in benchmark U.S. interest rates at
the Oct. 28-29 Federal Open Market Committee meeting, to 1.5
percent. Expectations had slipped a bit since late Thursday.
Euro zone government bond gains were wiped out by the stock
market rally. The two-year Schatz yield <EU2YT=RR> was flat at
3.316 percent.
This week investors still sought the safety of the U.S.
dollar, despite the turmoil created when the first version of
the financial bailout plan was put to a vote on Monday.
In the wake of Friday's vote, the euro slipped 0.16 percent
at $1.3794 <EUR=> from a previous session close of $1.3816. The
U.S. dollar index <.DXY> was up 0.04 percent at 80.521, holding
near a one-year high against a basket of major currencies.
Emerging sovereign debt spreads gyrated along with U.S.
Treasury movements, widening by 6 basis points while emerging
stocks <.MSCIEF> lost 2.61 percent, returning to an earlier
two-year low.
Gold prices fell $0.35 or 0.04 percent to $834.65 an ounce
<XAU=>. U.S. light crude slipped $0.81 to $93.16 a barrel
<CLc1>.
(Additional reporting by Ellis Mnyandu, John Parry, Nick
Olivari in New York; Ros Krasny in Chicago; Glenn Somerville in
Washington; Natsuko Waki, George Matlock in London)
