Stocks take another fall as investors' fear rages higher

— -- Investors are looking beyond Washington's debate over the economic rescue plan and beginning to wonder if the damage is already done.

Reports showing a seven-year high in unemployment claims and slowing factory orders indicate the economy is already weakening, even as the House of Representatives is expected to vote on the plan today.

"There is certainty the economy is going to have a tough time. Even the bailout package won't stop that," says Rod Smyth of Riverfront Investment.

Investors Thursday sent the Dow Jones industrials down 348 points, or 3.2%, to 10,483. The Dow is just 1% above its 2008 low, set Monday, the day it plunged 778 points. And the Wilshire 5000 index, a measure of the value of the U.S. stock market, fell 4.4% to a 2008 low and hit the lowest close since April 28, 2005. More than $4.2 trillion in shareholder wealth has evaporated this year.

Rampant signs of concern included:

•Surging stock investor fear. The CBOE Volatility index, a measure of investors' alarm, surged 14%. Nervous investors poured into three-month Treasury bills to cut the yield to 0.70% from 0.79%.

And partly because of rising fear about insurance companies, Credit Derivatives Research's CDR Investment Grade index, a measure of how worried investors are about getting their money back from top-rated companies, jumped 8.2%.

•Festering global pain. All the world's major stock market indexes are down this year, says Standard & Poor's Capital IQ. Fears of a worldwide economic slowdown also drove the price of a barrel of oil down $4.56 to $93.97.

•Worsening credit markets. Even top-rated companies are having trouble borrowing, shown by the commercial paper market shriveling up $94.9 billion during the week ended Wednesday to $1.6 trillion, a three-year low, Bloomberg News says. Loans to commercial banks and bond dealers from the Federal Reserve soared 60% to $348 billion through the same week.

Meanwhile, banks are reluctant to lend to one another, driving the rate on the London Interbank Offered Rate, or LIBOR, for one-month loans in dollars to 4.05% from 4.0%. There's swelling concern that companies won't make good on their debts. There are 512 bonds facing possible downgrades, up from 412 at this point last year, S&P says. Small and midsize companies are often facing 20% rates to borrow money, says Allen Stern of Imperial Capital.

The passage of the bailout should get money flowing again, Smyth says. "What's needed in the markets is a return to the normal way people raise capital and lend to each other," he says.