Auto Bailout Fails in Senate

NEW YORK (CNNMoney.com) -- Stocks slid Friday morning after a $14 billion auto industry bailout plan collapsed in the Senate.

The Dow Jones industrial average (INDU) lost 1.8% in the early going. The Standard & Poor's 500 (SPX) index lost 2% and the Nasdaq composite (COMP) lost 1.3%.

Peter Cardillo, analyst for Avalon Partners, said the failure of the bailout will weigh heavily on stocks. But Cardillo also said that better-than-expected retail sales figures could soften the impact.

Anthony Conroy, head trader at BNY Brokerage, said that securities fraud charges against ex-Nasdaq chief Bernard Madoff could have an even bigger impact than the bailout in undermining market confidence.

"In the bailout, they're asking for $14 billion," said Conroy. "This guy took $50 billion."

General Motors (GM, Fortune 500) fell 17% in the morning. Ford Motor (F, Fortune 500) shares were about 8% lower.

Big Three bailout: Negotiations to bring a bailout bill up for vote in the Senate fell apart late Thursday as Democrats and Republicans were unable to reach a deal.

The Senate voted 52-35 to bring the measure for a vote, but that was short of the 60 votes needed to advance the legislation.

The failed talks could possibly doom General Motors to bankruptcy and closure in the coming weeks.

GM has hired lawyers and restructuring consultants to handle any potential bankruptcy filing, according to a report in the Wall Street Journal.

If GM goes bankrupt, privately held Chrysler LLC potentially could follow close behind. Ford Motor has more cash on hand to avoid an immediate crisis, but its production could be disrupted by problems in the supplier base. (Full story)

World markets: Global markets dived on the collapsed talks. Japan's Nikkei index and the Hang Sang index in Hong Kong both lost nearly 6%. The major exchanges declined in Europe. London's FTSE and the DAX in Frankfurt fell about 4% and the CAC in Paris fell about 5% in midday trading.

Companies: After U.S. markets closed Thursday, Bank of America (BAC, Fortune 500) said it would slash up to 35,000 jobs over the next three years as it absorbs Merrill Lynch and contends with the deepening recession.

Economy: The Labor Department said the Producer Price Index, its monthly measurement of the price of goods at the wholesale level, fell 2.2% in November. The PPI was expected to decline 2% for November, according to a consensus of economist projections compiled by Briefing.com, following a decline of 2.8% the prior month.

The core PPI, which does not include volatile fuel and food prices, edged up 0.1%, as expected, following an increase of 0.4% in October.

The Commerce Department released its retail sales figures for November, showing a narrower-than-expected decline of 1.8%. A consensus of economist projections from Briefing.com had expected sales to fall 2% in November, compared to a record decline of 2.8% the prior month.

Without including automobiles, retail sales retreated 1.6% in November, compared with an expected 1.8% decline, according to Briefing.com consensus. Sales excluding autos dropped 2.2% in October.

Oil and money: Rejection of the bailout also caused oil prices to tumble. U.S. crude for January delivery lost $3.32 to $44.66 a barrel in electronic trading on the New York Mercantile Exchange.

In currency trading, the dollar tumbled to a 13-year low against the yen and slipped against the euro.