Credit markets remained tight, with two closely watched measures of bank lending jitters at record highs. Treasury prices jumped, lowering the corresponding yields, as investors sought less risky places to put their money.

Weekly jobless claims soared to a 7-year high, alarming investors ahead of Friday's big monthly report. And factory orders slumped to a 2-year low.

The Dow Jones industrial average (INDU) fell 348 points, recovering a bit from a drop of 391 points earlier. The Standard & Poor's 500 (SPX) index lost 4% and the Nasdaq composite (COMP) lost 4.5%.

"There's still concern about whether or not the House will pass the bill and, even if they do, whether it will be effective," said Ron Kiddoo, chief investment officer at Cozad Asset Management.

Stocks dipped Wednesday ahead of the Senate's 74-25 approval of the bill. On Thursday, the focus turned to whether the House will also pass the sweetened version. A vote on the bill is expected Friday, after the House shot down a slightly different version on Monday.

While critics say the bill won't do much to help the ailing economy, supporters say that without it, the financial market crisis will accelerate.

Billionaire investor Warren Buffett said that it is crucial to the global economy that the bailout plan passes and that $700 billion may not be enough. Buffett was speaking at Fortune's Most Powerful Women summit (Full story).

The House's rejection of the initial bill Monday sent the Dow down 777 points in its worst single-day point loss ever. Should the House fail to approve the bill Friday, it's thought it would be bad for the stock market, but disastrous for the credit markets.

Businesses depend on the credit markets to function on a daily basis, and the absence of ready capital has stalled the broader financial system and is also hurting the consumer.

"When you restrict credit, you restrict the ability of commerce to grow to its potential," said Gus Scacco, managing director of AG Asset Management.

"Banks have a limited amount of capital to dole out, so even if you are a company that is seeing decent growth, you are probably having a hard time getting a loan," he said.

The higher bank lending rates directly impact consumers too, he said, making it hard to get auto loans, or loans for a mortgage or tuition. Credit card companies are approving less people or trimming lines of credit, leaving individuals with less buying power. Consumer spending fuels two-thirds of economic growth.

Bailout: The core of the bill allows the Treasury Department to buy $700 billion in bad mortgage assets from banks, to be held and eventually sold off if and when the market improves. Ideally, with cleaner balance sheets, banks would start lending to each other again, loosening up the nearly frozen credit markets.

Modifications made after the House rejection include limiting executive pay packages at participating firms and raising the FDIC insurance cap. The FDIC insures depositors in case of a bank failure. Raising the amount it can insure could make investors and businesses less anxious to withdraw money from a struggling bank. (Full story)

The bailout was concocted in the wake of a series of bank failures and mergers that stemmed from the housing market collapse and subsequent credit crunch. Frozen credit markets mean banks cling to cash, making it difficult for businesses and individuals to get needed loans.

Credit markets: Several measures of bank nervousness hit record levels Wednesday, with banks still wary despite the prospect of the bailout gaining passage.

"What all these measures are telling us is that banks aren't willing to lend to anyone," said Kiddoo. "It shows you that the credit crunch is spreading to Main Street."

The 3-month Libor - the rate banks charge each other to borrow for three months - rose to 4.21% from 4.15% Wednesday, a more than 9-month high, according to Bloomberg.

The difference between the 3-month Libor and the Overnight Index Swaps rallied to an all-time high of 2.6%. The Libor-OIS spread measures how much cash is available for lending between banks and is used by banks to determine rates. The bigger the spread, the less cash is available.

The TED spread, which is the difference between 3-month Libor and what the Treasury pays for a 3-month loan, briefly hit an all-time high of 3.62%, before pulling back to 3.61%.

When banks are relatively confident, they charge each other rates that aren't much higher than the U.S. government. When the spread widens, that indicates increased jitters.

The yield on the 3-month Treasury bill, seen as the safest place to park money in the short term, fell to 0.68% from 0.80% late Wednesday. On Monday, the yield fell to 0.14% as panic gripped the markets. Earlier this month, the three-month bill skidded to a 68-year low around 0%. (Full story)

Long-term government debt prices rallied and the yields slipped. The benchmark 10-year Treasury note rallied 30/32, sending the corresponding yield down to 3.62% from 3.75% Wednesday. Treasury prices and yields move in opposite directions.

Company news: General Electric (GE, Fortune 500) shares slid after the company sold $12 billion in common stock Thursday at $22.25 per share, a 9% discount to Wednesday's closing price. The stock failed to benefit from late Wednesday news that Warren Buffett's Berkshire Hathaway will buy $3 billion in preferred stock. GE has been slumping lately amid worries about its earnings. (Full story)

A slew of bank and other financial services stocks dipped, including American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Morgan Stanley (BAC, Fortune 500) and Citigroup (C, Fortune 500).

Late Wednesday, freight-transportation company Con-Way (CNW) cut its earnings forecast for the full year, citing the difficult business environment. Shares fell 20.5% Thursday. A variety of other transportation stocks slid too, including railroads CSX (CSX, Fortune 500) and Norfolk Southern (NSC, Fortune 500).

Trucker JB Hunt (JBHT) fell 13% after a pair of analysts issued dour forecasts on the sector amid slumping manufacturing activity and the economic slowdown.

The Dow Jones transportation (DJTA) average lost 8.7%.

Fertilizer companies tumbled on Mosaic's weak profit report - and Merrill Lynch's downgrade - amid bets that the agriculture sector has peaked after surging earlier in the year.

Mosaic (MOS, Fortune 500) slumped 41% in unusually active New York Stock Exchange trade after it had reported higher earnings late Wednesday that were shy of estimates, sparking several analyst downgrades Thursday.

Monsanto (MON, Fortune 500) slid on the Merrill Lynch downgrade, losing 16.2% in active New York Stock Exchange trade. Other heavily traded losers included Potash (POT) and Agrium (AGU).

Farm equipment makers fell too, including Deere (DE, Fortune 500) and Caterpillar (CAT, Fortune 500), a Dow component.

MetLife (MET, Fortune 500), Hartford Financial Services (HIG, Fortune 500) and other life insurance companies slumped on widening credit spreads and comments from Senate Majority Leader Harry Reid, D-Nev., late Wednesday about a possible bankruptcy in the industry.

Market breadth was negative. On the New York Stock Exchange, losers topped winners five to one on volume of 1.51 billion shares. On the Nasdaq, decliners beat advancers by more than four to one on volume of 2.22 billion shares.

Economy: The number of Americans filing new claims for unemployment rose to 497,000 from a revised 496,000 the previous week, a 7-year high. Economists surveyed by Briefing.com thought claims would fall to 475,000, on average.

August factory orders fell 4% after rising 0.7% in the previous month. Economists surveyed by Briefing.com thought orders would fall 2.9%.

Oil and gold: Oil prices continued to retreat on bets that slower global growth will keep slowing demand for oil.

U.S. light crude oil for November delivery fell $4.56 per barrel to settle at $93.97 a barrel on the New York Mercantile Exchange. (Full story)

Oil prices have been rising lately, along with gold and other commodities, as investors have looked for relatively safer places to park their money amid the stock market instability. Prices initially plummeted more than $55 per barrel through early September after peaking at $147.27 per barrel on July 11.

COMEX gold for December delivery fell $43 to settle at $844.30 an ounce.

Other markets: In currency trading, the dollar gained against the euro and fell against the yen.

Gas prices fell for the 15th day in a row, according to a nationwide survey of credit card activity.

In global trading, European markets tumbled, while Asian markets ended mixed, with the Japanese Nikkei losing 1.8%

NEW YORK (CNNMoney.com) -- Stocks were set to open lower Thursday as nervous investors reacted to the Senate's approval of a $700 billion bailout plan for Wall Street and looked ahead to a House vote on Friday.

Adding to the economic nervousness, the Labor Department reported a seven-year high for jobless claims.

The department said 497,000 jobless claims were filed in the week ended Sept. 27 - much worse than forecasters predicted. Claims were expected to total 440,000, according to a consensus of economists provided by Briefing.com. Job losses were higher than the previous week's tally of 496,000.

Stock futures were down at 7:55 a.m. ET, after the Dow Jones industrial average slipped about 0.2% on Wednesday and the Nasdaq composite index fell more than 1%.

European stocks were mixed in early Thursday trading. Japan's Nikkei index closed lower.

The bailout: The Senate late Wednesday approved the proposed bailout, which would loosen up the credit freeze by allowing the government to buy bad mortgage-related investments from finance firms.

The House rejected a similar bailout bill earlier in the week and now investors are looking forward to Friday, when the body is expected to vote on the Senate-approved bill.

Art Hogan, chief market strategist for Jefferies & Co., said the Senate approval was widely expected and "baked into the cake," so it did not result in a stock rally. But the outcome of the House bill is "unknown," said Hogan.

"The market doesn't like uncertainty and that's what were focusing on right now," said Hogan. "We're playing wait-and-see and typically, when that happens, you don't have strength in the market."

The House rejection of the first version of the bailout bill resulted in a 777-point decline on the Dow on Monday, the biggest-ever single-point decline.

Economy: At 10 a.m. ET, the Commerce Department will announce factory orders for August. Orders are expected to have fallen 2%, according to a consensus of economists from Briefing.com. In July, orders increased 1.3%.

Currency and oil: The dollar slipped versus the yen, but rose against the euro and the British pound. Oil prices fell 87 cents to $97.66 a barrel.  

Credit markets remained pinched, with closely watched measures of bank fear still at elevated levels. The ISM manufacturing index, a key reading on the economy, fell to a seven-year low near a level that suggests a recession.

The Dow Jones industrial average (INDU) lost 0.2%. The Standard & Poor's 500 (SPX) index slid 0.5% and the Nasdaq composite (COMP) lost 1.1%.

The Dow fell more than 100 points in the morning, but curbed those losses in the afternoon as more specifics about the modified bailout plan were released. Financial and homebuilding shares rallied, but many other stock sectors declined, including technology and oil services.

General Electric (GE, Fortune 500) trimmed losses, but remained in the red after it said that Warren Buffett's Berkshire Hathaway will buy up to $6 billion of its stock. The stock has been under pressure throughout the session on worries about its 2009 earnings.

Meanwhile automakers were reporting September sales, with Ford Motor (F, Fortune 500) announcing a bigger-than-expected decline and General Motors (GM, Fortune 500) a narrower-than-expected drop.

"There's a big drip of negative news on the economy right now, but the market seems to be fully focused on the prospect of a bailout," said Bill Flaig, portfolio manager at Arrow Funds.

Eli Lilly (LLY, Fortune 500) is in late-stage talks to buy Erbitux maker ImClone for $70 a share or $6.1 billion, The Wall Street Journal reported after the close Wednesday.

Wednesday also brought the release of a number of dour economic reports, including one that suggested a near-recessionary environment. The ISM manufacturing index fell to 43.5 in September, nearing a level that implies recession. Any level below 50 shows weakness. Economists thought it would dip to 49.5 in the month from 49.9 in August.

Oil prices slipped below $100 a barrel, while gold prices were little changed. Treasury prices gained, lowering the corresponding yields. The dollar was mixed versus other major currencies.

Senate to vote: The Dow jumped 485 points Tuesday in a broad-based rally on bets that some form of the bailout will ultimately get passed. On Monday, the Dow slumped 777 points, its biggest one-day point loss ever, after the House of Representatives failed to pass the Bush administration's bailout plan.

The modified version of the bailout proposal goes before the Senate Wednesday night and is expected to have bipartisan approval. The House will take up the matter again later in the week. (For more on the bill, click here)

Confidence that a bill will eventually be passed soothed markets - but didn't push them higher.

Passage of the bill has been priced into the market now, Flaig said. "The debate has moved on to what it will mean, whether it will be as effective as hoped and whether it's all coming too late."

Critics argue that the plan, while critical for both Main Street and Wall Street, won't keep the economy from slowing further.

Company news: Automakers were reporting September sales throughout the session. Among those that have reported, Ford Motor (F, Fortune 500) said sales slumped 34% in the month, worse than expected. GM (GM, Fortune 500) said sales fell 16%, which was not as bad as expected.

General Electric (GE, Fortune 500) slipped 4% as the Warren Buffett news vied with an earlier report from a Deutsche Bank analyst that speculated the company's earnings will decline last year. GE said last week that earnings could fall as much as 12% this year.

Financial stocks rallied. Citigroup (C, Fortune 500) added 12%, Bank of America (BAC, Fortune 500) gained 9% and Merrill Lynch (MER, Fortune 500) gained 5.5%.National City (NCC, Fortune 500) climbed 65% as worries that it won't survive dissipated after several rough sessions for the bank.

But big techs dipped, with IBM (IBM, Fortune 500) down 5.8% on skepticism about its quarterly earnings. Other tech losers included eBay (EBAY, Fortune 500) off 6.8% and Oracle (ORCL, Fortune 500) down 2.2%.

Bailout plan: The bill will let the Treasury Department buy bad mortgage assets from banks, to be held and ultimately sold if and when the market improves.

Ideally, with cleaner balance sheets, banks would be able to start lending to each other again, defrosting the frozen credit markets. With a market for the debt, prices would eventually rise.

Modifications include raising the FDIC insurance cap to $250,000 from $100,000. The FDIC is the agency that insures depositors in case of a bank failure and raising the caps would make businesses and individuals less anxious to withdraw money from accounts at a struggling bank. (Full story)

The $700 billion plan was hatched in the wake of a series of bank failures and mergers amid the housing market collapse and subsequent credit market freeze up. Frozen credit markets mean banks cling to cash, making it difficult for businesses and individuals to get needed loans.

But so far, while stocks have seesawed over the last week, credit has remained tight.

Credit markets: Businesses depend on the credit markets to function on a daily basis, and the absence of ready capital has threatened to stall the broader financial system.

Several measures of bank nervousness remained elevated Wednesday, suggesting that despite the likelihood of a bailout going through, banks are skeptical as to how much impact it will have.

"It's unclear whether the purchasing of these assets will stabilize balance sheets," said Alan Gayle, senior investment strategist at RidgeWood Investments. In addition, he noted that there are ongoing questions about how to value the assets in the first place.

3-month LIBOR, which banks charge each other to borrow for three months, jumped to 4.15% from 4.05% late Tuesday.

The TED spread, which is the difference between 3-month Libor and what the Treasury pays for a 3-month loan, rose to 3.42% from 3.15% late Tuesday. On Monday, the TED spread hit a more than 26-year high above 3.50%.

If banks are relatively confident, they should charge each other not much more than the U.S. government. When the spread widens, that indicates rising jitters.

The yield on the 3-month Treasury bill, seen as the safest place to park money in the short term, fell to 0.79% from 0.88% late Tuesday. On Monday, the yield fell to 0.14% as panic gripped the markets. Earlier this month, the three-month bill skidded to a 68-year low around 0%. (Full story)

Long-term government debt prices rallied and the yields slipped. The benchmark 10-year Treasury note rallied 21/32, sending the corresponding yield down to 3.75% from 3.82% Tuesday. Treasury prices and yields move in opposite directions.

Economy: August construction spending was flat, the government reported, versus forecasts for a drop of 0.5%. Spending fell a revised 1.4% in July.

Employers in the private sector cut 8,000 jobs from their payrolls in September versus forecasts for a cut of 53,000, said payroll processing firm ADP. The report precedes Friday's broader government employment figures.

Oil and gold: Oil prices cut losses after dipping sharply on the government's weekly inventories report, which showed oil inventories rose more than expected and gas inventories rose versus forecasts for a decline.

U.S. light crude oil for November delivery fell $2.11 to settle at $98.53 per barrel on the New York Mercantile Exchange. (Full story)

Oil prices had plummeted over $55 after peaking at $147.27 a barrel on July 11, as investors bet that sluggish global growth will diminish oil demand. But the recent acceleration of the financial crisis had caused investors to buy up commodities in a safer-haven play.

COMEX gold for December delivery rose $6.50 to settle at $887.30 an ounce. Like oil, gold prices rallied during the biggest periods of unrest over the last few weeks.

Other markets: In currency trading, the dollar rose against the euro and fell against the yen.

Gas prices fell for the 14th day in a row, according to a nationwide survey of credit card activity.

In global trading, Asian markets ended lower, and European markets ended mostly higher.

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NEW YORK (CNNMoney.com) -- Stocks slipped Wednesday morning as investors took a step back from the previous session's rally and geared up for the Senate vote later on a tweaked version of the $700 billion bailout package.

The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all dropped in the early going.

This follows a tremendous Tuesday on Wall Street, which saw the Dow Jones industrial average jump 485 points, or 4.7%, on hopes for a new bailout package.

On Monday, the Dow plunged 777 points, its worst point drop ever, after the House rejected the bailout bill.

The Senate version of the bill includes new provisions, such as raising the Federal Deposit Insurance Corp. cap protecting deposits to $250,000 from $100,000. The provisions will be added to an existing revenue bill that the House also rejected Monday, according to Democratic leadership aides.

"Everybody's waiting around for the vote from the Senate," said Peter Cardillo, an analyst with Avalon Partners. "It looks like we're going to get a bailout plan. It would be devastating at the point if we didn't."

Economy: As another sign of the economic crisis, the Mortgage Bankers Association's report showed a 23% plunge in mortgage applications in the week ended Sept. 26.

Automatic Data Processing released its monthly employment report, showing a decline of 8,000 private sector jobs in September, from the prior month. In August, the economy lost 37,000 jobs, ADP said.

At 10 a.m. ET, the Commerce Department will release its August measurement of construction spending. Economists surveyed by Briefing.com project a decline of 0.4%, compared to a steeper decline of 0.6% the prior month.

Also at 10 a.m., the Institute for Supply Management - a purchasing managers' group - will release its September index of manufacturing activity. Economists surveyed by Briefing.com project a reading of 50.1, just above the 50 mark that denotes economic expansion and the 49.9 reading in August.

At 10:35 a.m. ET, the Energy Information Administration releases weekly inventory data. Analysts surveyed by Platts expect U.S. crude stocks to range between a 1.5 million barrel increase and a 1.5 million barrel decrease in the week ended Sept. 26.

Markets: The Nikkei closed higher, while European markets were mostly higher. The dollar edged up versus the euro, the British pound and the yen. Oil prices dipped, falling $1.83 to $98.81 a barrel.