NEW YORK (CNNMoney.com) -- Stocks skidded Monday afternoon, with the Dow's nearly 778-point drop being the worst single-day point loss ever, after the House rejected the government's $700 billion bank bailout plan.
Stocks tumbled ahead of the vote and the selling accelerated on fears that Congress would not be able come up with a fix for nearly frozen credit markets. The frozen markets mean banks are hoarding cash, making it difficult for businesses and individuals to get much-needed loans.
According to preliminary tallies, the Dow Jones industrial average (INDU) lost 777.68, surpassing the 684.81 loss on Sept. 17, 2001 - the first trading day after the September 11 attacks. However the 7% decline does not rank among the top 10 percentage declines.
The Standard & Poor's 500 (SPX) index was down 8.7% and the Nasdaq composite (COMP) 9.1%.
"The stock market was definitely taken by surprise," said Drew Kanaly, chairman and CEO of Kanaly Trust Company, referring to the House vote. "If you watched the news stream over the weekend, it seemed like it was a done deal. But the money is being held hostage to the political process."
Stocks had fallen from the get-go Monday morning. In addition to expectations for the bailout, there was also news that troubled Wachovia had to sell its banking assets to Citigroup. A number of European banks also collapsed.
But the possibility that the House won't pass the bailout plan caused stock losses to accelerate.
"It's a huge disappointment," said Jack Ablin, chief investment officer at Harris Private Bank.
Ablin said the fact that stocks were down more than 200 points this morning ahead of the vote indicated that there was already skepticism that the plan would pass.
Although another version of the plan will likely go before Congress, investors are concerned that passing the bill could be a more drawn-out process.
And they are worried about how effective the proposed plan would be anyway, said Alan Gayle, senior investment strategist at RidgeWorth Investments.
"We are charting new territory in policy tools and implementation with this program and there's no guarantee that it will work," Gayle said.
"That a number of institutions haven't been able to last through the negotiations adds to the uncertainty," Gayle said, referring to Washington Mutual's failure on Friday and the buyout of Wachovia Monday.
Stocks are also extremely choppy and volatile as Wall Street moves to the end of the third quarter. Financial institutions and funds are expected to have their books settled before Wednesday, so there is a lot of last-minute scrambling, Gayle said.
Treasury prices rallied, sending yields lower, as investors sought safety in government debt.
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