The pullback follows mostly moderate moves in stocks since mid-November and is a fresh reminder of investors' fears about the economy.
Prospects for the $14 billion in loans to cash-starved General Motors Corp. and Chrysler LLC dimmed Thursday afternoon as opposition from both parties mounted. At the close of trading, the bill was stalled in the Senate, though negotiations were continuing, according to congressional staffers.
Lawmakers opposed to the plan argued that any government support should require significant cuts in wages and benefits for autoworkers. The House approved the plan late Wednesday on a vote of 237-170 to infuse money within days to the two struggling automakers. Ford Motor Co. has said it does not need aid.
The heads of the three automakers said that even one of the companies going into bankruptcy would slam an already battered economy with thousands of job losses. The government reported a surprise jump in weekly unemployment claims Thursday, nearly a week after it said the nation's unemployment rose to a 15-year high in November.
Wall Street has been betting Washington would extend a lifeline to the automakers and even recovered early Thursday from a sell-off at the opening bell that followed the unemployment report and a surprise increase in the nation's trade deficit. But the worries about the carmakers overtook a market that managed to trade flat for much of the session.