NEW YORK — Financial markets extended their declines Tuesday as investors worried that lawmakers were beginning to doubt the necessity of a broad government bailout for financial institutions as a way to revive ailing credit markets.
Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second- guessing from lawmakers than some investors had expected.
The Dow Jones industrials, which had been higher for the first half of the session, ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.
Still, trading appeared more orderly than Monday, when investors rushed into hard assets such as oil and gold.
Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short- term financial asset, while the dollar regained some ground after being hit hard Monday.
After days of intense gyrations in financial markets, investors are anxious about whether the plan to absorb bad mortgages and other risky assets will help steer the economy onto more solid footing — and also about resistance to the plan in Congress.
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox testified before lawmakers, who are working alongside others in the Bush administration to complete the details of the bailout.
Traders grew nervous and sent the stock market lower as the officials faced questions about whether the government’s planned response was appropriate.
The Dow fell 161.52, or 1.47 percent, to 10,854.17 after having risen more than 125 points in the early going and then falling by more than 180.
Broader stock indicators also fell Tuesday. The Standard & Poor’s 500 index fell 18.87, or 1.56 percent, to 1,188.22, and the Nasdaq composite index fell 25.67, or 1.18 percent, to 2,153.34.
“We’re going to see this volatility for a while even after this package passes because I think we’re still facing a fundamental slowdown in the economy worldwide, which is going to have some impact on earnings,” said J. Stephen Lauck, chief executive and portfolio manager at Ashfield Capital Partners.
