Video: Goldman Sachs, Morgan Stanley trying to stay afloat

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NEW YORK - Volatility is sweeping through the financial markets as investors await details of the government's plan to buy $700 billion in banks' mortgage debt.

Stocks are falling sharply, taking the Dow Jones industrials down more than 200 points, while investors are seeking safety in hard assets such as oil, which has shot up more than $11 a barrel.

Investors are relieved that federal authorities are taking action to relieve the nation's banks of their toxic assets. But Wall Street is not sure yet how successful the plan will be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.

The Dow is down 238 points at the 11,149 level, while oil is up $11.45 at $116 a barrel. The dollar is down sharply, while the credit markets are somewhat steadier than during last week's frantic trading.

Investors are relieved that federal authorities are taking action to relieve the nation's banks of their toxic assets. But it is not sure yet how successful the plan will be in loosening up the credit markets and propping up the sinking housing market.

Bush administration officials and congressional leaders have been meeting on the rescue plan, the main thrust of which congressional leaders have endorsed.

Investors are also digesting a mix of corporate news. Microsoft Corp. said it plans to repurchase its shares. And Morgan Stanley said it is working to sell up to a 20 percent stake to Japan's Mitsubishi UFJ Financial Group Inc.

The Federal Reserve on Sunday granted Morgan Stanley and Goldman Sachs, the country's last two major investment banks, approval to change their status to bank holding companies. The change of status will allow the companies to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both. They also will be subject to more regulation.

That shift came a week after negotiations failed to save Lehman Brothers Holdings Inc. That and the government's plan to bail out American International Group Inc. helped lead to a seizing up of the credit markets that spurred the government to formulate its plan to rescue companies from their crippling debt.

The yield on the Treasury's 3-month Treasury bill was at 0.93 percent Monday, down slightly from 0.94 percent late Friday, indicating that investors were still willing to take low returns on a safe asset. However, the yield was a far cry from yields around zero at the height of last week's frenetic buying, however; yields move in the opposite direction from price. Short-term Treasurys are seen as the absolute safest place to place cash.

The Treasury's 2-year note's yield was at 2.19 percent, up from 2.14 percent Friday. The yield on the 10-year benchmark Treasury was higher, at 3.88 percent compared with 3.82 percent Friday.

In midmorning trading, the Dow Jones industrial average fell 158.26, or 1.39 percent, to 11,230.18. The pullback comes after the stock market's best two-day session in years so some retrenchment, especially amid the anxiety on the Street, wasn't unexpected.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 19.59, or 1.56 percent, to 1,235.49, and the Nasdaq composite index fell 30.44, or 1.34 percent, to 2,243.46.

The market did get some good news from Microsoft, which said it plans to repurchase as much as $40 billion of its shares. The software maker said it completed a previous $40 billion buyback plan. The company also raised its quarterly dividend to 13 cents from 11 cents. Microsoft rose $1.09, or 4.3 percent, to $26.25.

Morgan Stanley said it signed a letter of intent to sell its stake to Mitsubishi UFJ Financial and that the price of the stake would be based on Morgan's book value after Mitsubishi completes due diligence. Morgan Stanley rose $2.68, or 9.9 percent, to $29.89.

Meanwhile, Goldman Sachs fell $3.46, or 2.7 percent, to $126.34 following announcement of its move to become a commercial bank.

The dollar fell against most other major currencies, while gold prices rose.

Investors were also watching rebounding oil prices. Light, sweet crude for October delivery rose $4.32 to $108.87 a barrel on the New York Mercantile Exchange. On Friday, crude oil jumped by more than $6 a barrel to break back above the $100-a-barrel mark.

Overseas markets were mixed. In Asia, Japan's Nikkei 225 index climbed 1.4 percent to 12,090.59 points, and Hong Kong's Hang Seng Index rose 1.6 percent to 19,632.20. In European trading, London's FTSE rose 0.44 percent, Germany's DAX rose 0.12 percent and France's CAC 40 fell 0.18 percent.