Bank stocks and the broader markets slumped Thursday on more bad economic news with a second House vote on the government bailout plan set for Friday.

The KBW Bank Index fell 3.16%, the Dow Jones industrial average 3.22%, and the Standard & Poor's 500 4.03%.

The Labor Department said new unemployment claims for the week that ended Sept. 27 rose by 1,000, to a seasonally adjusted 497,000, the highest since the aftermath of the 2001 terrorist attacks. Damage caused by Hurricane Gustaf and Hurricane Ike added about 45,000 claims for the week.

The Commerce Department said orders for manufactured goods fell 4% in August, to $444.4 billion, from a month earlier. Economists had expected a 2.5% decline.

On Wednesday night the Senate approved the Treasury Department's proposal to create a facility that would buy up to $700 billion of troubled assets from institutions. In an attempt to win more Republican support, the Senate added several provisions to the bill, including tax credit extensions and an increase in deposit insurance coverage to $250,000 per depositor.

The House plans to take up the bill Friday if leaders believe they have secured enough support. The chamber failed to pass the bill on Monday, rejecting it 228 to 205 amid strong Republican opposition.

Michael O'Boyle, a trader at Sterne Agee Financial Services Inc., said investors were likely worrying that the vote in the House will be even tighter than it was Monday. But he said he believes the bill will ultimately get passed.

"Then, some of the bank stocks will be good buying opportunities," Mr. O'Boyle said, though he would not name any.

Late Wednesday the Securities and Exchange Commission extended its temporary ban on the short-selling of more than 800 financial stocks "to allow time for completion of work on the anticipated passage of" the bailout bill.

The SEC's ban, put in place on Sept. 18 and set to expire Thursday, will now last until 11:59 p.m. on the third business day after Congress enacts the bailout plan. It is to end no later than 11:59 p.m. on Oct. 17.

Thursday's decliners included Bank of New York Mellon Corp., 8.9%; Bank of America Corp., 4.6%; Northern Trust Corp., 9.4%; Commerce Bancshares Inc. in Kansas City, Mo., 8.8%; and Community Central Bank Corp in Mount Clemens, Mich., 29.5%.

National City Corp. rose 8.7%. The hedge fund TPG-Axon Capital Management disclosed Thursday that its stake in the troubled Cleveland banking company had fallen to 3.9% in recent days. As recently as last week, TPG-Axon had owned a 5% stake in National City. The fund did not say when or why its stake fell below the 5% threshold. National City's shares have been on a roller-coaster ride this week.

Other gainers included Sovereign Bancorp Inc., 8.9%; Regions Financial Corp., 13.4%; Wachovia Corp., 10.1%; and First Bancshares Inc. in Hattiesburg, Miss., 30.6%.

Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said "some of the bank stocks that took the worst beating earlier in the week are gaining some of that back."

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