Markets may get some relief from federal rescue deal

— -- The tentative agreement on the $700 billion financial bailout should provide welcome relief for investors, but markets could remain unstable this week as the bill works its way through Congress.

The U.S. financial system has been strained as stocks gyrated and tight credit forced companies and other borrowers to pay interest rates not seen in at least a decade.

And financial system pressures remain evident worldwide. Belgium, the Netherlands and Luxembourg said Sunday that they would invest $16.4 billion in Fortis, Belgium's largest financial services firm, to help restore confidence.

The fact that legislators are advancing a bailout will be a big relief for investors today, says Joseph Saluzzi, trader at Themis Trading. Investors anticipated as much by pushing the Dow Jones industrials up 121 points Friday to 11,143.

But that only cut the Dow's loss for the week to 245 points, or 2.1%, and left it down 16% for 2008. The long-awaited agreement came just as markets were showing signs of stress, including:

•Skittishness about lending money has pushed up the interest rates that large, highly rated companies pay to their highest compared with Treasuries with similar maturity dates in at least a decade, according to the Merrill Lynch U.S. Corporate index. Bonds of highly rated companies on Friday were yielding 4.6 percentage points more than Treasury yields, up from 1.5 percentage points a year ago.

•Companies with lower credit ratings, either due to their smaller size or shakier finances, faced onerous interest rates seen only when investors expect major financial distress. These companies are paying 10.3 percentage points more than Treasuries, up from a 4.1-point spread a year ago, according to the Merrill Lynch U.S. High Yield index.

•Yields on municipal bonds issued by cities and other local government entities remain elevated. And the commercial paper market, which companies use to borrow cash short term, "is stuck," says Bill Larkin of Cabot Money Management.