* Global stocks fall on doubts about bailout plan's fate
* Oil prices fall $3 a barrel on slowing global demand
* Dollar climbs from record one-day euro loss as oil falls
* Government debt rises in safe-haven bid, bailout doubts
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Sept 23 (Reuters) - The U.S. government's
proposed $700 billion bailout of Wall Street dominated markets
on Tuesday, with the dollar rising on optimism the plan would
aid the economy but global stocks falling on uncertainty over
its fate.
U.S. and euro-zone government bond prices rose and
inter-bank lending rates stayed far above central bank target
levels as investors worried about the viability of a plan that
lawmakers must approve and that will be paid for by taxpayers.
Oil prices fell more than $3 a barrel, reversing direction
after Monday's dramatic rally, as dealers focused on slowing
global energy demand and doubts over the U.S. bailout plan.
Other commodities also tumbled, with copper down almost 4
percent, with profit-taking on the firmer dollar adding
pressure.
As investors focused on congressional testimony by U.S.
Treasury Secretary Henry Paulson and Federal Reserve Chairman
Ben Bernanke, tightness in credit market was very much alive. A
closely watched gauge showed banks are still reluctant to make
loans to each other.
The spread between the borrowing cost on three-month dollar
funds in the inter-bank market and the expected three-month
rate on benchmark U.S. federal funds widened, signaling banks'
unwillingness to part with their cash beyond a week.
"I just don't think the American public is sold. I think
they are skeptical of the need and they are fearful of the
cost," David Dietze, chief investment officer at Point View
Financial Services in Summit, New Jersey.
"The skepticism is that this is going to help the Wall
Street financiers and do nothing for the little guy other than
saddle them with a big tax bill," Dietze said.
U.S. stocks fell, as lower commodity prices dragged down
natural resources companies, reversing earlier gains on hopes
the proposed bailout would help loosen up credit markets, while
boosting business and consumer spending.
Investors were cautious and trading was choppy a day after
Wall Street's slide wiped out gains from Friday that were
driven by initial enthusiasm over the rescue plan.
Before 1 p.m., the Dow Jones industrial average <> was
down 29.39 points, or 0.27 percent, at 10,986.30. The Standard
& Poor's 500 Index <.SPX> was down 4.99 points, or 0.41
percent, at 1,202.10. The Nasdaq Composite Index <> was
down 4.56 points, or 0.21 percent, at 2,174.42.
General Electric Co <GE.N> was a to drag on the Dow and the
S&P, falling more than 4 percent to $24.99, after a Goldman
Sachs analyst cut the company's profit outlook..
European shares ended sharply lower for the second straight
as investors fretted over the bailout.
The pan-European FTSEurofirst 300 <> index closed
1.64 percent lower at 1,108.54 points.
Banks took the most points off the index, with UBS
<UBSN.VX> falling 7.9 percent and Royal Bank of Scotland
<RBS.L> losing 5.9 percent.
Miners also fell sharply, tracking metal prices. Anglo
American <AAL.L> was the most heavily weighted loser on the
index, falling 8.2 percent, while Rio Tinto <RIO.L> lost 5.1
percent.
U.S. elections in November make the bailout a sensitive
subject, and politicians will do their utmost to make populist
changes, said Emiel van den Heiligenberg, head of asset
allocation at Fortis Investments in London.
"We would expect the plan to be accepted, perhaps in a
slightly amended form, but stay cautious on markets because of
the recession and the impact on earnings," he said.
The dollar climbed from a record one-day loss versus the
euro, with investors encouraged by the fall in oil prices and
Wall Street's steady performance.
The euro <EUR=> rose 0.56 percent at $1.4701.
Against major currencies, the dollar gained, with the U.S.
Dollar Index <.DXY> up 0.41 percent at 76.585. Against the yen,
the dollar <JPY=> fell 0.37 percent at 105.80.
Trading was thin as many investors waited until the market
turmoil to subside.
Bond gains were curbed by concerns over how much such a
bailout would cost.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
7/32 to yield 3.83 percent. The 30-year U.S. Treasury
bond<US30YT=RR> rose 2/32 to yield 4.42. percent.
U.S. light sweet crude oil <CLc1> fell $3.28 to $106.09 a
barrel.
Spot gold prices <XAU=> fell $12.80 to $887.40 an ounce.
Overnight in Asia, stocks fell and U.S. Treasury prices
rose on skepticism about Washington's billion bailout plan.
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> slipped 2.2 percent. Japan's market was closed
because of a holiday.
(Reporting Ellis Mnyandu, Richard Leong and Gertrude
Chavez-Dreyfuss in New York and Sitaraman Shankar, Jane
Merriman, Alex Lawler and Kirsten Donovan in London; Writing by
Herbert Lash; Editing by Leslie Adler)
