* U.S. stocks fall sharply on concerns about bailout plan
* Dollar drops against euro, fueling buying of gold, oil
* Oil has record one-day gain as October contract expires
* Government debt falls on worries of plan's fiscal impact
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 22 (Reuters) - Widespread doubts about the
U.S. government's $700 billion bailout of troubled banks
slammed stocks, bonds and the dollar on Monday, while oil
soared more than 20 percent in its biggest one-day gain on
record.
The dollar extended losses on worries about the bailout
resulting in a massive U.S. budget deficit, dropping to a
three-week low against the euro. The single European currency
had its biggest one-day rise since January 2001.
Euro zone government bonds hit a six-week low, extending
losses from late last week, and U.S. Treasuries also fell as
investors fretted the plan would require more U.S. government
debt issuance, boosting the yield on longer-dated debt.
Investors switched out of dollars into trusted safe havens,
sending gold up nearly 4 percent, on fears that the massive
bailout may not stem the long-simmering credit crisis.
But the day's biggest eye-grabber was an off-the-charts
move by the record surge in crude as the U.S. oil contract
<CLc1> for October expired, squeezing traders who had bet
prices would follow a recent trend and fall.
With crude prices on the November contract rising on a view
the bailout would bolster the flagging U.S. economy and drive
up demand, traders were forced to buy oil.
"Short squeeze, crude expiration -- that's it in a
nutshell," said Tom Knight, a trader at Truman Arnold in
Texarkana, Texas.
At one point crude jumped more than 24 percent to hit $130
a barrel, before paring gains to settle up $16.37 at $120.92 a
barrel. The November contract, which was much more actively
trade, gained $6.62 to $109.37.
The weak dollar, which boosts the purchasing power of
commodity buyers using other currencies, helped fuel the gains
in the price of crude.
Uncertainty about the bailout plan pushed the three major
U.S. stock indexes down more than 3 percent, while leading
European shares fell more than 2 percent. Analysts said they
could not gauge the ultimate cost or form of the plan.
"It's just too big to analyze on a one-day view," said John
Haynes, a strategist at Rensburg Sheppards. "The Fed, I think,
is going to win in the end, but as to whether stocks go up or
down in the next three months, it's the toss of a coin."
The bailout that the Bush administration is pressing
Congress to approve would be one of the costliest for financial
companies since the Great Depression.
The Dow Jones industrial average <> closed down 373.23
points, or 3.28 percent, at 11,015.21. The Standard & Poor's
500 Index <.SPX> shed 47.96 points, or 3.82 percent, at
1,207.12. The Nasdaq Composite Index <> lost 94.92 points,
or 4.17 percent, at 2,178.98.
Only 2 of the Nasdaq 100 stocks ended higher.
In the latest move over the past week that will transform
how Wall Street operates, the Federal Reserve late Sunday
agreed to allow the last two big U.S. investment banks, Goldman
Sachs <GS.N> and Morgan Stanley <MS.N>, to become bank holding
companies.
Monday's stock slump reversed a rally on Friday when the
bailout announcement had 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."
Banks were the biggest stock losers. The biggest drag on
the S&P 500 was JPMorgan Chase <JPM.N>, down more than 13
percent, followed by Well Fargo & Co <WFC.N> and Bank of
America <BAC.N>. They fell 11.6 percent and 8.88 percent,
respectively.
In Europe, the region's biggest bank, HSBC <HSBA.L>, fell
5.8 percent and was the largest drag on the pan-European
FTSEurofirst 300 <> index of top European shares.
The pan-European index ended 2.1 percent lower at 1,127.08,
after a record surge of more than 8 percent on Friday.
As the dollar suffered, the euro <EUR=> rose as high as
$1.4775, its highest since late August, Reuters data showed.
"Nobody knows what form the bailout package will take,"
said Ron Simpson, director of currency research at Action
Economics in Tampa, Florida.
"We only know vaguely how much it will cost. So if you are
a foreigner and looking at the U.S. fiscal position it does not
look pretty for this year and next."
The euro <EUR=> rose 2.52 percent at $1.4828.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 1.99 percent at 76.031. Against the
yen, the dollar <JPY=> fell 2.10 percent at 105.16.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
1/32 to yield 3.82 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 6/32 to yield 4.40 percent.
Gold rose, also benefiting from its reputation as an
inflation hedge as crude prices rose.
Spot gold prices <XAU=> rose $29.05 to $900.20 an ounce.
"A flight to quality, without a doubt. People are looking
for somewhere to put their money," said Jonathan Jossen, a
COMEX gold options floor trader. "It would not shock me to see
gold at $950 by the end of the week."
Asian stocks climbed overnight. Japan's Nikkei share
average <> closed up 1.4 percent, after hitting a
three-year low last week.
Outside of Japan, stocks in the Asia-Pacific region were up
2.4 percent, bouncing further from a two-year low plumbed on
Thursday, according to an MSCI index <.MIAPJ0000PUS>.
(Reporting by Kristina Cooke, Richard Leong, Gertrude
Chavez-Dreyfuss and Nick Olivari in New York, and Joe Brock,
Jan Harvey and Sitaraman Shankar London; Writing by Herbert
Lash, Editing by Leslie Adler)
