By Steven C. Johnson
NEW YORK (Reuters) - Stocks fell in choppy trading on Wednesday as tight credit markets and U.S. jobs weakness kept investors on edge before a Senate vote on a revamped rescue plan for the financial sector.
Trading was tentative a day after Wall Street notched its best daily performance in six years, and investors worried about how effective a $700 billion bank rescue in the United States would be in averting recession.
Those fears were reinforced by bleak economic reports on employment and manufacturing, which weighed on industrial shares, while shares of energy companies weakened as oil prices edged lower.
General Electric , seen as an economic bellwether, fell 4.5 percent, while heavy-equipment maker Caterpillar shed 4.1 percent, making them top drags on the Dow.
GE had been down more than 8 percent but pared losses after investor Warren Buffett said he planned to pump $3 billion into the company.
But traders said the news about Buffett was outweighed by anxiety about credit markets and the U.S. economy.
"For the first time it's really starting to look like a recession," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco. "Maybe we don't get that number in the fourth quarter necessarily, but it's going to be tough at this point to avoid a recession."
The Dow Jones industrial average was down 51.13 points, or 0.47 percent, at 10,799.53. The Standard & Poor's 500 Index was down 8.48 points, or 0.73 percent, at 1,157.88. The Nasdaq Composite Index was down 23.68 points, or 1.13 percent, at 2,068.20.
Earlier, the market pared losses briefly when a report citing a European government source said France planned a $300 billion euro ($424.4 billion) rescue package for European banks. However, French Economy Minister Christine Lagarde denied the report.
Investors like the idea of a rescue for European banks because it would mean "the U.S. Treasury and the Federal Reserve aren't fighting the credit crisis alone," said Frederic Dickson, market strategist at D.A. Davidson & Co in Lake Oswego, Oregon
Financial shares rose on hopes the Senate would approve a rescue plan. Citigroup rose 11.6 percent to $22.88 and JPMorgan Chase added 4.2 percent to $48.69.
In the job market, ADP Employer Services said U.S. private employers cut 8,000 jobs in September, which was fewer than expected but was accompanied by a downward revision in August's job figures. A separate report showed a slowdown in U.S. manufacturing in September.
"People are cautious and they lack confidence that a bailout plan will be a one-stop solution," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey. "It won't be."
The U.S. rescue plan, which would allow the Treasury Department to buy bad mortgage-related assets from banks, is the centerpiece of a bid to unlock credit markets and head off a deeper economic downturn in the United States and abroad.
Republican House members voted against the plan on Monday by about 2-to-1. A majority of Democrats voted in favor.
The Senate's modified legislation, scheduled for a vote late on Wednesday, will include a sharp increase in the amount of bank deposits insured by the Federal Deposit Insurance Corp and tax breaks the House of Representatives rejected.
(Additional reporting by Ellis Mnyandu and Herbert Lash; Editing by Kenneth Barry)
