NEW YORK (CNNMoney.com) -- Stocks turned lower Tuesday afternoon, as investors stepped back after the previous session's massive rally, in the wake of the government's plan to spend $250 billion on stock in banks.
Credit markets eased a bit, with a key overnight bank lending rate falling. Treasury prices slumped, raising the corresponding yields. The dollar fell against the euro and gained versus the yen. Oil, gold and gas prices eased.
The Dow Jones industrial average (INDU) lost 190 points with about 90 minutes left in the session. It rose as much as 406 points in the first minutes of trading, but jutted into negative territory.
The Standard & Poor's 500 (SPX) index lost 1.7% after having risen more than 4% in the morning.
The Nasdaq composite (COMP) tumbled 3.4%, with some of its large technology shares slumping after the previous session's advance.
Stocks rallied at the open as the government detailed the nuts and bolts of its bank bailout plan. But the early advance petered out as investors showed some caution after Monday's big rally.
The weakness was a little bit of buyer's remorse, said John Wilson, chief technical strategist at Morgan Keegan. "After a day like yesterday, you'd expect a little to come off the table."
The Dow rallied 936 points Monday - its best one-day point gain ever and best day on a percentage basis since 1933 - on bets that the worst of the credit crisis is over. Investors welcomed more specifics on the $700 billion bank bailout plan as well as a series of global initiatives aimed at loosening up credit.
The S&P 500 rose 104 points, its best single-day point gain ever. The Nasdaq's jump of nearly 195 points was the 10th best ever.
In the short term, market pros will be looking for signs as to whether last week's lows marked a bottom for the bear market.
"We came from an environment in which sentiment was as sour as I've ever seen it, so we saw a bounce or a melt up," said Hank Smith, chief investment officer at Haverford Investments.
However, the stock market is not out of the woods yet, Smith said. Economic data are going to continue to be weak and third-quarter results are expected to reflect that.
Last week was the Dow's worst ever, capping a stunning eight-session selloff that cut 2,400 points and 22% off the blue-chip indicator. The selling erased $2.4 trillion in market value from the Dow Jones Wilshire 5000, the broadest measure of the stock market.
Wilson said that the level of investor fear last week and the strength of the rally Monday suggest that a low has been put in place, but that the next few weeks will better determine that. For now, he said he'd like to see several sessions of flat to modestly lower trading followed by another good up day.
$700 billion: The Treasury Department, unveiling details of the $700 billion bailout plan approved earlier this month, said Tuesday it will pour $250 billion directly into the nation's banks in a dramatic move meant to stabilize the flailing financial system.
Nine of the largest banks have already agreed to participate. The program calls for the government to buy preferred shares in the banks, hold those shares until the market stabilizes and then sell them back to the banks. The program also limits executive pay.
The government is insuring all deposits in non-interest bearing bank accounts. This enables companies to manage their payroll and checking accounts without fear of surpassing the limits backed by the Federal Deposit Insurance Corp.
has also asked Congress for an additional $100 billion of the $700 billion to aid financial institutions.
And the Federal Reserve said it will start buying huge amounts of commercial paper starting Oct. 27, putting a start date to a program announced last week. Commercial paper is a key form of short-term debt that companies rely on for daily operations. (Full story)
The Fed has also pumped funds - possibly trillions of dollars - into the banking system in an effort to get banks to lend again. Central banks around the world have also stepped in to keep the system functioning.
But the credit markets have remained frozen amid the housing market collapse and subprime lending meltdown. Stocks have retreated as the credit crisis dragged the already strapped economy deeper into what many say is a recession.
Credit market: A variety of bank lending indicators declined, in a sign that some of the recent global initiatives may be starting to work. Treasury markets were closed Monday in the United States because of Columbus Day.
Libor, the overnight bank-to-bank lending rate, fell to 2.18% from 2.47% Friday, according to Bloomberg.com.
The three-month Libor, what banks charge each other to borrow for three months, fell to 4.64% from 4.75% Monday.
The Libor-OIS spread, a measure of cash scarcity, decreased to 3.39% from a record high of 3.67% Friday.
The TED spread, which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays, edged up to 4.30% from an earlier reading of 4.09%. The TED spread stood at a record 4.65% Friday. The wider the spread, the more reluctant banks are to lend to each other.
Earnings: Dow component Johnson & Johnson (JNJ, Fortune 500) reported quarterly earnings that ralllied from a year earlier and topped estimates. The health care company also boosted its full-year profit forecast. Shares gained 2.5%.
PepsiCo (PEP, Fortune 500) reported lower quarterly earnings that missed estimates, warned that 2008 profits won't meet forecasts and said it was cutting jobs as part of a global cost-cutting plan. Shares fell 12%.
On the move: A variety of financial services stocks rallied, led by Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), National City (NCC, Fortune 500), Wachovia (WB, Fortune 500), Wells Fargo (WFC, Fortune 500), Morgan Stanley (MS, Fortune 500) and Merrill Lynch (MER, Fortune 500).
But a number of technology and energy stocks declined, countering the impact of the rally in banks.
Market breadth was mixed. On the New York Stock Exchange, winners topped losers eight to seven on volume of 1.16 billion shares. On the Nasdaq, decliners beat advancers four to three on volume of 1.9 billion shares.
Other markets: U.S. light crude oil for November delivery fell $2.34 to $78.85 a barrel on the New York Mercantile Exchange. Oil prices have tumbled on bets of slowing demand since the price of crude hit an all-time high of $147.27 a barrel on July 11.
Gasoline prices fell another 4.3 cents overnight, to a national average of $3.163 a gallon, according to a survey of credit card activity by motorist group AAA. It was the 27th consecutive day that prices have decreased - in the past month alone, they're down more than 63 cents a gallon.
COMEX gold for December delivery settled down $3 to $839.50 an ounce.
In currency trading, the dollar slipped against the euro and gained against the yen.