Stocks slip as bailout doubts spark bond gains

By Herbert Lash

NEW YORK (Reuters) - Uncertainty over the fate of a proposed $700 billion bailout of Wall Street drove down U.S. and European stocks on Tuesday, while the dollar rose on views the plan might not be as negative for the greenback as initially feared.

U.S. and euro-zone government bond prices rose and inter-bank lending rates traded far above central bank target levels as investors worried about the viability of a plan whose final cost and composition are still unknown.

Oil prices fell more than $2 a barrel, reversing 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 3.2 percent in New York, with profit-taking on the firmer dollar adding pressure.

Credit markets remained tight as U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testified before Congress. A closely watched gauge showed banks are still reluctant to make loans to each other.

Paulson urged lawmakers to pass legislation quickly to calm markets, but congressional leaders said it would be a mistake to rush such a sweeping bailout into law.

No senator stepped forward with an overt threat to block the plan, but the head of the Senate Banking Committee, Connecticut Democrat Christopher Dodd, said the plan was "not acceptable," although he said Congress could pass a plan if changes are made.

"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.