Stocks sink on bailout jitters, oil's jump

By Ellis Mnyandu

NEW YORK (Reuters) - Stocks fell on Monday, weighed by uncertainty about how far a proposed $700 billion U.S. financial sector bailout will go in resuscitating the economy and as oil prices resumed their climb.

U.S. front-month crude oil jumped $5.01 to $109.63 a barrel as the dollar weakened, sparking concern about the outlook for consumer and business spending.

Banks, home builders, retailers, airlines and big manufacturers were among the biggest decliners as negotiations over the mechanics of 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 , the No 3 U.S. bank, slid 10 percent to $42.33, making the stock the top drag on both the Dow and the S&P 500.

Wells Fargo , the fifth-largest U.S. bank, fell 12.2 percent to $34.93. The S&P financial index <.GSPF>declined more than 6 percent.

"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."

The Dow Jones industrial average <.DJI> fell 210.51 points, or 1.85 percent, to 11,177.93. The Standard & Poor's 500 Index <.SPX> declined 27.42 points, or 2.18 percent, to 1,227.66. The Nasdaq Composite Index <.IXIC> fell 49.94 points, or 2.20 percent, to 2,223.96.

Members of Congress have called for changes to the bailout plan announced by U.S. Treasury Secretary Henry Paulson on Friday, when stocks rallied.

Uncertainty about the bailout overshadowed news that Mitsubishi UFJ Financial Group <8306.T> Japan's largest bank planned to buy a stake in Wall Street bank Morgan Stanley .

Goldman Sachs and Morgan Stanley , whose shares were battered last week amid worries about their outlooks, are abandoning their investment bank model of two decades to become bank holding companies.

Morgan Stanley shares shot up 9.5 percent to $29.80, but Goldman Sachs shares were little changed, up just 0.1 percent, at $129.97.

As rising oil prices are likely to hurt consumers, investors sold off shares of consumer-oriented companies, including Procter & Gamble , down 2.6 percent at $68.50. Shares of Target Corp , the No. 2 U.S. discount retailer, dropped 4.6 percent to $50.90 after Lazard Capital Markets cut the stock to "hold" from buy."

Among home builders, shares of Hovnanian Enterprises declined 5.4 percent to $8.56, as the Dow Jones U.S. home construction index <.DJUSHB> fell 6.2 percent.

Shares of Caterpillar Inc , an economic bellwether and a Dow component, lost 1.7 percent to $65.34.

Kraft Foods Inc , a new member of the 30 Dow industrials, effective at Monday's opening bell, also dropped 3.4 percent to $33.49.

On Nasdaq, shares of Apple fell 2.9 percent to $136.80 after JPMorgan cut its price target on the iPod and iPhone maker's stock.

(Additional reporting by Kristina Cooke; Editing by Jan Paschal)

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