* 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
* Global stocks lose about $1.7 trillion; gold jumps 4 pct
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 29 (Reuters) - Major U.S. stock indexes
dropped the most in two decades on Monday after U.S. lawmakers
rejected a $700 billion bailout plan and major U.S. and
European banks made emergency deals to survive, making
investors flee to gold, government debt and the low-risk yen.
The Dow fell more than 770 points, its biggest single-day
decline on record. Spot gold prices jumped more than 4 percent
and crude oil prices fell almost 10 percent after the U.S.
House of Representatives voted down the bailout bill.
The broad Standard & Poor's 500 Index <.SPX> fell 8.77
percent, its biggest one-day decline in percentage terms since
Black Monday in October 1987 when it plummeted 22 percent.
World stocks, as measured by MSCI's all country world
index, lost about $1.7 trillion for the day.
The failed proposal would have authorized the U.S. Treasury
to spend up to $700 billion to buy illiquid 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.
"What should have been a day of hope turned into a day of
desperation," said Marco Annunziato, chief economist at
UniCredit in London. "We are facing a systemic crisis of
confidence in the global financial system that is pushing us
increasingly close to a complete meltdown."
President George W. Bush and Treasury Secretary Henry
Paulson said the administration would work to develop a
strategy to rescue the financial system.
The Dow Jones industrial average <> closed down 777.68
points, or 6.98 percent, at 10,365.45. The Standard & Poor's
500 Index <.SPX> shed 106.59 points, or 8.79 percent, to
1,106.42. The Nasdaq Composite Index <> lost 199.61
points, or 9.14 percent, to 1,983.73.
The congressional vote, designed to stabilize skittish
financial markets around the world, stunned investors who
wondered what would come next.
"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.
Before the vote, the euro and British pound 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 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.
Aversion to risk boosted the low-yielding Japanese yen as
investors flocked to safe-havens.
In Europe, the leading index of European shares fell more
than 5 percent to a three-and-a-half year closing low, while
many indexes elsewhere, especially in emerging markets, tumbled
harder.
"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, continued to pump liquidity into
world markets. Major central banks also announced a $330
billion increase in an arrangement among themselves to make
more dollars available to the markets.
"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 closed
down almost 18 percent on concerns 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
close since January 2005 -- and off 27 percent this year.
In government bond markets, the benchmark 10-year U.S.
Treasury note <US10YT=RR> rose 63/32 to yield 3.62 percent, and
the 2-year U.S. Treasury note<US2YT=RR> rose 23/32 to yield
1.71 percent. European government bonds surged, pushing the
two-year yield to a five-month low.
The euro <EUR=> fell 1.16 percent to $1.4444, and against
the yen, the dollar <JPY=> fell 1.73 percent at 104.14. The
dollar rose against a basket of major currencies, with the U.S.
Dollar Index <.DXY> up 0.42 percent at 77.609.
MSCI's all country world equity index <.MIWD00000PUS>
plunged 6.7 percent, its biggest single-day loss in at least 20
years. MSCI's emerging markets stock index <.MSCIEF> dropped
6.26 percent, its biggest drop on record.
U.S. November crude <CLc1> settled down $10.52 to $96.37 a
barrel, after touching a session low of $95.04, in the second
biggest drop since April 2003. November crude dropped 11.8
percent last Tuesday following a spike involving the expiry of
the October crude contract.
December gold futures <GCZ8> settled up $5.90 at $894.40 an
ounce in New York. Spot gold <XAU=> rose $38.85, or 4.42
percent, to $917.25.
(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 Chizu
Nomiyama)
