Credit markets remained jammed, with short-term borrowing costs rising as banks clung to cash amid the ongoing uncertainty.
The Dow Jones industrial average (INDU) lost about 140 points, or 1.3% in the early going. The Standard & Poor's 500 (SPX) index fell 1.7% and the Nasdaq composite (COMP) lost 2.2%.
This follows a strong Thursday session, as investors showed their enthusiasm over reports that Congressional leaders had reached a deal on a proposed $700 billion cash injection to buy bad mortgage-related investments from the failing finance sector.
But late Thursday, opposition to the deal by some Republicans emerged, and negotiations broke down. House Republicans have created a competing plan that would ease tax laws and allow the injection of more private capital, rather than taxpayer money, to bail out the finance industry. Bailout talks were set to resume Friday.
Financial services power JPMorgan Chase (JPM, Fortune 500) said late Thursday it would buy the failed bank WaMu after it was seized by the Federal Deposit Insurance Corp. JPMorgan said it would acquire all of WaMu's banking operations, including $307 billion in assets and $188 billion in deposits. The buyer said it would pay $1.9 billion to the FDIC and raise another $8 billion through the sale of stock.
In other financial news, the Federal Reserve Bank announced a plan to stabilize global markets by boosting its currency swap agreements with the European Central Bank and the Swiss National Bank by $13 billion.
In yet another sign of a sluggish economy, the Commerce Department said the economy grew at a 2.8% annual rate in the second quarter, which was lower than the previously reported 3.3% and the 3.4% that was expected by economists surveyed by Briefing.com.
