U.S. Stock Futures Drop as Economic Concerns Trump Bailout Bill

By Patrick Rial and Saeromi Shin

Oct. 2 (Bloomberg) -- U.S. stock futures slumped, reversing earlier gains after the Senate approved a $700 billion bank rescue plan, on concern the package will fail to stem an economic slowdown.

Investors sold the futures and Asian stocks retreated, led by automakers and commodity producers, after U.S. car sales plunged the most in 17 years. The relief measure, which was rejected earlier by the lower house of Congress, authorizes the purchase of troubled assets from financial companies. It passed with a 74-25 vote.

Futures on the Standard & Poor's 500 Index expiring in December lost 13.50, or 1.2 percent, to 1,154.90 as of 1:34 p.m. in Tokyo, retreating from an earlier 0.5 percent advance. The benchmark index has slumped 21 percent this year as the subprime mortgage crisis brought down companies including Lehman Brothers Holdings Inc. and pushed the economy toward recession.

``Investors are selling stocks on news, which is quite typical in a bear market like this,'' said Cho Min Keon, a fund manager at Kyobo AXA Investment Managers Co. in Seoul, which manages the equivalent of $578 million in equities. ``After the eventual passage, the market focus will also move gradually from the financial sector to the impact on the real economy.''

While the bill will help unclog credit markets, some investors expressed skepticism it will bring a return to normalcy. Meanwhile, the U.S. economy showed further signs of deterioration yesterday after a report that manufacturing contracted last month at the fastest pace since the last recession.

``The recession is going to get worse,'' Warren Buffett, the world's richest man and chairman of Berkshire Hathaway Inc., said in an interview with Charlie Rose. ``I don't want to hold out false hopes.''

To contact the reporters on this story: Patrick Rial in Tokyo at prial@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net