Stocks and oil fall as China plan euphoria wanes

By Herbert Lash

NEW YORK (Reuters) - Initial euphoria over China's nearly $600 billion (380 billion pound) stimulus plans faded on Monday, leaving U.S. stocks at the mercy of new signs of corporate distress

which highlighted the economy's weak state.

Stock markets in Asia and Europe rose after China on Sunday reported it had approved a government spending package and said it would adopt a "moderately easy" monetary policy.

However, investors soon sought safety, lifting the price of government debt and pushing U.S. stocks mostly lower, as a further assessment of China's plans and dismal corporate news led investors to think the bigger picture remains bearish.

The cost of rescuing American International Group (AIG.N) jumped to $150 billion after a smaller bailout failed to stabilise the ailing insurance giant, and shares of General Motors Corp (GM.N) plunged to 62-year on analysts downgrades.

AIG reported a record $24.47 billion third-quarter loss, while Fannie Mae, the largest source of funding for U.S. homes, reported a record $29 billion loss and said it is losing money so fast it may have to tap the government for additional cash to avoid shutting down.

"While the China stimulus could be perceived as positive for the market, it is really a double-edged sword," said strategist Peter Dixon of Commerzbank.

"If it works, then it could mean China's economy could grow fairly rapidly. But, what it also means is that the economy has been weaker than anticipated prior to this event," he said.