NEW YORK (AP) – Financial markets extended their declines Tuesday as investors worried that lawmakers were beginning to doubt the necessity of a broad government bailout for financial institutions as a way to revive ailing credit markets.

Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second-guessing from lawmakers than some investors had expected. The Dow Jones industrials, which had been higher for the first half of the session ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.

Still, trading appeared more orderly than Monday, when investors rushed into hard assets like oil and gold. Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short-term financial asset, while the dollar regained some ground after being hard hit Monday.

After days of intense gyrations in financial markets, investors are anxious about whether the plan to absorb bad mortgages and other risky assets will help steer the economy onto more solid footing – and also about resistance to the plan in Congress.

Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox testified before lawmakers, who are working alongside others in the Bush administration to complete the details of the bailout.

Traders grew nervous, and sent the stock market lower, as the officials faced questions about whether the government’s planned response was appropriate. Sen. Chuck Schumer, D-N.Y., for example, asked whether $150 billion might be adequate to get the program started if investors were told more money could be added if necessary.

The market remains uncertain about how long it will take for the bailout plans to take effect, and assuming they do, how effective they will be.

“There’s skepticism about whether the $700 billion number is the right number,” said Jim Herrick, manager and director of equity trading at Baird & Co.

Bernanke told the Senate Banking Committee Congress risks triggering a recession if it doesn’t act on the plan. He said inaction could leave a range of businesses unable to borrow the money while consumers could find it impossible to finance big purchases like cars and homes.

While financial markets showed uneasiness as investors listened to the testimony, there wasn’t the level of fear and volatility that dominated Monday’s trading.

Demand for short-term Treasurys remained high. The yield on the 3-month T-bill fell to 0.79 percent from 0.88 percent on Monday; last week, it was around zero after investors flooded money into T-bills as the credit markets seized up. That spurred government officials to propose a debt buyout plan.

The yield on the benchmark 10-year Treasury note, which trades opposite its price, fell to 3.80 percent from 3.85 percent late Monday.

The dollar, whose decline Monday drove some of the frenetic trading in other markets, regained some of its lost ground against the euro, while gold prices declined after starting the week with a big advance.

The Dow fell 161.52, or 1.47 percent, to 10,854.17 after having risen more than 125 points in the early going and then falling by more than 180. With Monday’s 370-point decline, the blue chips are down 534 points, or 4.69 percent, for the week.

Broader stock indicators also fell Tuesday. The Standard & Poor’s 500 index fell 18.87, or 1.56 percent, to 1,188.22, and the Nasdaq composite index fell 25.67, or 1.18 percent, to 2,153.34.

Investors also were watching oil prices after anxiety over the government bailout and a huge short-covering rally pushed crude to the biggest one-day gain.

Light, sweet crude for November delivery fell $2.76 to settle at $106.61 on the New York Mercantile Exchange. The October contract, which expired Monday, surged as much as $25.45 to $130 before falling back to settle at $120.92, an advance of $16.37. While that gain was due to technical market dynamics, the price of oil has moved higher over the past week amid increasing concerns about the U.S. financial system.

“We’re going to see this volatility for a while even after this package passes because I think we’re still facing a fundamental slowdown in the economy worldwide which is going to have some impact on earnings,” said J. Stephen Lauck, chief executive and portfolio manager at Ashfield Capital Partners.

Financial stocks finished mixed as some investors worried that the government’s plan could prove inadequate to save some banks. Should the government pay too little for assets some banks might be forced to book ruinous write-offs and risk going under.

Bank of America Corp. fell 85 cents, or 2.5 percent, to $33.30, while Washington Mutual Inc. fell 13 cents, or 3.9 percent, to $3.20.

Some energy names lost ground as oil declined. Occidental Petroleum Corp. fell $4.08, or 5 percent, to $77.16 and XTO Energy Inc. declined $1.14, or 2.2 percent, to $51.30.

In addition, some industrial stocks slid as investors worried about the well-being of the global economy. Aluminum maker Alcoa Inc. fell $1.21, or 4.5 percent, to $25.59. Seed company Monsanto Co. fell $4.85, or 4.2 percent, to $112.14.

Some technology stocks advanced as investors looked for areas outside the financial, energy and industrial sectors. Computer chip maker Intel Corp. rose 13 cents to $18.63, while Sprint Nextel Corp. rose 27 cents, or 4.2 percent, to $6.77.

Declining issues outnumbered advancers by about 5 to 2 on the New York Stock Exchange, where consolidated volume came to 5.11 billion shares, compared with 5.22 billion traded Monday.

The Russell 2000 index of smaller companies fell 11.25, or 1.56 percent, to 709.19.

Overseas, Britain’s FTSE 100 fell 1.91 percent, Germany’s DAX index slid 0.64 percent, and France’s CAC-40 fell 1.98 percent. Japanese financial markets were closed Tuesday for a national holiday.

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AP-ES-09-23-08 1747EDT

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