* Uncertainty about bailout plan weighs on stocks
* Oil rises on bank rescue effort, weak dollar
* Japanese bank plans to buy big stake in Morgan Stanley
* Dow off 2.2 pct, S&P off 2.4 pct, Nasdaq off 2.7 pct
(Updates to afternoon, changes byline)
By Steven C. Johnson
NEW YORK, Sept 22 (Reuters) - U.S. stocks fell on Monday as
a spike in oil prices renewed fear about consumer spending and
investors worried whether a $700 billion rescue package for the
financial sector would be enough to resuscitate the economy.
Oil rose 12 percent -- the biggest jump in 10 years -- to
$117.28 <CLc1>, extending a rally sparked by Friday's
announcement of the banking rescue plan and a fall in the
dollar.
Banks, home builders, retailers, airlines and big
manufacturers were among the biggest decliners as negotiations
over the plan to mop up bad mortgage debt on banks' balance
sheets heated up in Washington.
The Bush administration is pressing Congress to approve one
of the costliest U.S. bailouts for financial companies since
the Great Depression.
Shares of JPMorgan Chase <JPM.N> , the No 3 U.S. bank, slid
10.3 percent to $42.22, making the stock the top drag on both
the Dow and the S&P 500.
Wells Fargo <WFC.N> , the fifth-largest U.S. bank, fell
12.1 percent to $34.98. The S&P financial index <.GSPF>
declined more than 7 percent.
Monday's malaise reversed a rally on Friday when the
bailout announcement sparked Wall Street's best one-day gain
since 1987.
"Here it is Monday and people are waking up from a gigantic
hangover, trying to figure out what's next," said John
Schloegel, vice president of investment strategies for Capital
Cities Asset Management in Austin, Texas.
"There's pain ahead for the economy, pain for the consumer,
pain at the gas pump," he said. "We're getting hit with a
double whammy today with commodities moving higher."
The Dow Jones industrial average <> was down 251.68
points, or 2.21 percent, at 11,136.76. The Standard & Poor's
500 Index <.SPX> was down 30.78 points, or 2.45 percent, at
1,224.30. The Nasdaq Composite Index <> was down 60.23
points, or 2.65 percent, at 2,213.67.
"There is lingering uncertainty about the overall economy
despite the moves to shore up the financial markets," said
Michael James, senior trader at regional investment bank
Wedbush Morgan in Los Angeles.
"Clearly the weakness in the financial markets has been
part of the drag on the economy in the first nine months, but
it has not been the only drag. Merely shoring up the weak
financial markets is not necessarily a salve to the overall
economy's problems."
With oil up, investors sold shares of consumer-oriented
companies, including Procter & Gamble <PG.N> , down 2.3 percent
at $68.77. Shares of Target Corp <TGT.N>, the No. 2 U.S.
discount retailer, dropped 4.7 percent to $50.80 after Lazard
Capital Markets cut the stock to "hold" from buy."
Uncertainty about the bailout overshadowed news that
Japan's largest bank, Mitsubishi UFJ Financial Group <8306.T>,
planned to buy a stake in Wall Street bank Morgan Stanley
<MS.N>.
Goldman Sachs <GS.N> and Morgan Stanley are abandoning
their investment bank model of two decades to become bank
holding companies regulated by the Federal Reserve.
Morgan Stanley shares were last up 1.8 percent to $27.68
after earlier adding more than 10 percent, but Goldman Sachs
shares were down 4 percent at $124.63.
Among home builders, shares of Hovnanian Enterprises
<HOV.N> declined 7.7 percent to $8.36. Meanwhile, shares of
Caterpillar Inc <CAT.N> , an economic bellwether and a Dow
component, lost 2.1 percent to $65.13.
Kraft Foods Inc <KFT.N>, a new member of the 30 Dow
industrials, effective at Monday's opening bell, also dropped
3.5 percent to $33.48.
On Nasdaq, shares of Apple <AAPL.O> fell 4 percent to
$135.26 after JPMorgan cut its price target on the iPod and
iPhone maker's stock.
(Additional reporting by Ellis Mnyandu and Kristina Cooke;
Editing by Kenneth Barry)
