(RTTNews) - With investors reacting to the House’s vote to pass the government’s $700 billion bill to rescue the troubled credit markets, U.S. stock markets ended a volatile session sharply lower. The Dow ended the session down more than 150 points after soaring 300 points.

Earlier in the day, the House of Representatives passed a measure to allow the Bush Administration to buy up to $700 billion in mortgage-backed securities in an effort to bring stability to financial institutions and unfreeze credit markets.

The financial rescue package is essentially identical to a measure that failed in the House Monday, with the addition of provisions to increase FDIC insurance caps from $100,000 to $250,000. The rescue package was also tied to a broad range of tax cuts for alternative energy, a fix to the Alternative Minimum Tax and a series of other personal and business tax cuts.

The combination, along with reports of the effects of the credit crunch spreading beyond Wall Street to make car and student loans more difficult to obtain and tales of businesses losing operating lines of credit, proved enough to bring more support for the measure from both parties.

President George W. Bush signed the bill into law, praising Congress for passing the Emergency Economic Stabilization Act following a tense week on Capitol Hill.

There were “moments this week when some folks thought the federal government could not rise to the challenge,” Bush noted, but he thanked members of both the Democratic and Republican parties for their efforts.

“By coming together on this legislation we have acted boldly to prevent” the crisis on Wall Street from spreading to Main Street, Bush said.

Treasury Secretary Henry Paulson also praised Congress for passing the bill. The $700 billion plan was passed by a 263-171 margin. Congress debated the plan heavily this week as markets around the world stood on edge.

“The broad authorities in this legislation, when combined with existing regulatory authorities and resources, gives us the ability to protect and recapitalize our financial system as we work through the stresses in our credit markets,” Paulson said in a statement. The Treasury Secretary also promised to “move rapidly to implement the new authorities.”

While Washington was in focus throughout the day, investors also reacted to a pair of economic reports. Earlier in the day, the Labor Department released its monthly report on the employment situation. In its report, the Labor Department said that employment fell by more than expected in September, although the unemployment rate remained unchanged at 6.1 percent from the previous month.

The report showed that non-farm payroll employment fell by 159,000 jobs in September compared to a revised decrease of 73,000 jobs in August. Economists had expected employment to fall by about 100,000 jobs compared to the decrease of 84,000 jobs originally reported for the previous month.

Meanwhile, service sector activity in the U.S. expanded slightly in September, though the pace of growth was down from the previous month, according to data reported by the Institute for Supply Management.

The major averages saw additional selling pressure in late day trading, closing near their intraday lows. The Dow set a two-year closing low, closing down 157.47 points or 1.5 percent at 10,325.38. The Nasdaq set a three-year closing low, closing down 29.33 points or 1.5 percent at 1,947.39, while the S&P 500 set a three-year closing low, closing down 15.05 points or 1.4 percent at 1,099.23.

Sector News

Airline stocks turned in some of the worst performances despite a modest decline in oil prices. The Amex Airline Index fell 5.8 percent, adding to the loss posted in the previous session. Despite the loss, the index only reversed the gains it posted earlier in the week.

Housing stocks also saw significant selling pressure, as investors worried that the bailout plan may not help the economy as hoped. The Philadelphia Housing Index ended the session 4.9 percent lower, setting a monthly closing low.

Despite a 58.8 percent gain by Wachovia (WB), most bank stocks ended the session lower. The KBW Bank Index fell 3.7 percent, adding to a sharp loss posted in the previous session. Nonetheless, the index remains well off of the low it set on Monday, when the initial bailout bill did not pass.

Wachovia announced that it has agreed to a $15.1 billion all-stock merger with Wells Fargo (WFC). The company said that its board approved Wells Fargo’s offer last night. Prior to receiving the offer from Wells Fargo, Wachovia had been negotiating with Citigroup (C) to complete a transaction supervised by the FDIC that included assistance from the government. According to CNBC, Citigroup is considering a possible lawsuit over the deal.

Other stocks that closed sharply lower include real estate, disk drive and software stocks. The Morgan Stanley REIT Index closed down 5 percent, the Amex Disk Drive Index closed down 4.5 percent and the Amex Software Index closed down 3.2 percent.

On the other hand, gold stocks ended the session with notable gains despite a drop in the price of the precious metal. The Amex Gold Bugs Index saw a gain of 1.3 percent, climbing off of the three-week closing low set in the previous session.

Dow Components

The Dow components ended a volatile session on the downside, sending the blue chip index sharply lower. Of the 30 stocks that make up the Dow, only 9 ended the day higher.

Citigroup led the Dow lower following the news that Wells Fargo has offered to buy Wachovia for about $7 a share. Shares of Citigroup plunged 18.4 percent, extending a loss posted in the previous session. The stock is moving further off of a four-year closing high set on Wednesday.

Other financial stocks closed lower as well, including JP Morgan Chase (JPM) and Bank of America (BAC). JP Morgan Chase closed down 7.9 percent, compared to a 5.2 percent decline by Bank of America.

American Express (AXP) also saw significant selling pressure. Shares of the credit card issuer saw a decline of 4 percent, adding to a sharp loss posted in the previous session. With the decline, the stock set a five-year closing low.

Taking its cue from the housing sector, Home Depot (HD) closed sharply lower as well. Shares of the home improvement retailer closed down 4.2 percent, setting a two-month closing low.

General Electric (GE), McDonald’s (MCD) and Johnson & Johnson (JNJ) also closed lower. General Electric closed down 2.6 percent, McDonald’s closed down 2.7 percent and Johnson & Johnson closed down 2.4 percent.

On the other hand, Merck (MRK) ended the day with a notable gain. The stock closed 2.2 percent higher, reversing the loss posted in the previous session. Despite the gain, the stock remains in a two-week trading range.

Other Dow components that closed higher include Wal-Mart (WMT), Pfizer (PFE) and Boeing (BA). Wal-Mart closed up 1.5 percent, while Pfizer ended the session 1.1 percent higher. Boeing saw a gain of 0.5 percent.

Other Markets

Stock markets across the Asia-Pacific region closed mostly lower on Friday, mirroring Wall Street’s plunge overnight. Japan’s Nikkei 225 average languished in negative territory throughout the session before closing down 1.9 percent.

On the other hand, the major European markets ended the day with considerable gains. The French CAC 40 Index closed up 3 percent and the Germany’s DAX Index finished higher by 2.4 percent, while the U.K.’s FTSE 100 Index rose 2.3 percent.

Meanwhile, treasuries ended a volatile session nearly unchanged. The benchmark ten-year note traded on either side of the unchanged throughout the session, although it ended the day nearly unchanged. The yield on the ten-year note closed down less than a basis point at 3.644 percent.

Looking Ahead

Looking ahead to next week, the economic calendar is fairly light, with the highlight being the Department of Commerce’s international trade balance and the release of the minutes from the Federal Reserve’s last meeting. Other reports released next week include pending home sales and the weekly report on initial jobless claims.

Meanwhile, Federal Reserve Chairman Ben Bernanke will be speaking on Monday and Tuesday at the National Association for Business Economics annual meeting in Washington. Minneapolis Fed Reserve Bank President Gary Stern and Philadelphia Fed Reserve Bank President Charles Plosser will speak throughout the week as well.

On the earnings front, Alcoa (AA) will kick off earnings season on Tuesday, when it releases its third quarter results. Safeway (SWY), Yum! Brands (YUM), Costco Wholesale (COST), Monsanto (MON), Chevron (CVX) and General Electric (GE) are all also scheduled to report their quarterly results next week.

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