US STOCKS-Wall St falls on credit woes, recession worry
* Manufacturing, jobs data heighten economic worry
* Senate due to vote on revamped $700 billion bailout
* General Electric shares drop after broker action
* Dow off 1.6 pct, S&P 500 off 1.7 pct, Nasdaq off 1.5 pct (Updates to midmorning)
By Ellis Mnyandu
NEW YORK, Oct 1 (Reuters) - U.S. stocks fell on Wednesday as signs of continued strains in the credit markets and labor market weakness kept investors on edge before a Senate vote on a revamped rescue plan for the financial sector.
A day after Wall Street notched its best day in six years, investors worried how effectively the $700 billion bank rescue will avert recession for the economy and repair weak corporate profits.
Economic reports on Wednesday painted a bleak picture of U.S. employment and manufacturing. In addition, the interbank cost of borrowing dollars over three months again rose on Wednesday. [ID:nL1217803]
General Electric (GE.N) , down more than 8 percent, was among the top decliners after Deutsche Bank cut its price target and outlook on the diversified manufacturer and Dow component.
Shares of heavy-equipment manufacturer Caterpillar Inc (CAT.N) , another economic bellwether, slid more than 6 percent. Shares of energy companies, including Chevron (CVX.N), fell along with crude oil prices, making the energy sector a top drag on the broader market.
"For the first time it's really starting to look like a recession," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco. "Maybe we don't get that number in the fourth quarter necessarily, but it's going to be tough at this point to avoid a recession."
The Dow Jones industrial average .DJI fell 174.51 points, or 1.61 percent, to 10,676.15. The Standard & Poor's 500 Index .SPX declined 20.21 points, or 1.73 percent, to 1,146.15. The Nasdaq Composite Index .IXIC shed 30.42 points, or 1.45 percent, to 2,061.46.
In the job market, ADP Employer Services said U.S. private employers cut 8,000 jobs in September, which was fewer than expected but was accompanied by a downward revision in August's job figures.
"People are cautious and they lack confidence that a bailout plan will be a one-stop solution. It won't be," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.
The Senate's modified rescue legislation, scheduled for a vote later on Wednesday, will include a sharp increase in the amount of bank deposits insured by the Federal Deposit Insurance Corp and tax breaks the House of Representatives rejected.
The rescue plan, which would allow the Treasury Department to buy bad mortgage-related assets from banks, is the centerpiece of the government's bid to unlock credit markets and head off a deeper economic downturn in the United States and abroad. Republican House members voted against the rescue package on Monday by about 2-to-1. A majority of Democrats voted in favor.
GE shares fell to $23.51 on the New York Stock Exchange, while Caterpillar shares declined to $5.82. Chevron shares fell to $79.91 as U.S. front-month crude declined $3.29 to $97.35 a barrel. On Nasdaq, technology bellwether Apple Inc (AAPL.O) was the top drag, falling 3.5 percent to $109.63.
Bucking the downward flow, bank shares headed higher on hopes of the bailout passage, with Bank of America (BAC.N) up 3.2 percent at $36.12. (Additional reporting by Herb Lash, Editing by Kenneth Barry)
