*U.S. House of Representatives approves bailout plan
*Bailout plan passage prompts U.S. stock profit taking
*Wells Fargo buying Wachovia for roughly $16 bln
*U.S. job rolls suffer deepest cut in 5-1/2 years in Sept (Releads with passage of U.S. bailout plan, updates prices)
By Daniel Bases
NEW YORK, Oct 3 (Reuters) - Investors cut into a global stock market rally on Friday after the U.S. House of Representatives approved a $700 billion financial rescue plan, taking profits in a classic "buy the rumor, sell the news" move.
A U.S. dollar rally also fizzled, but the greenback is still on track for its best week in 16 years against a basket of currencies and versus the euro since its launch in 1999
U.S. and European stocks had risen earlier, ahead of the expected passage of the legislation. A $16 billion purchase of troubled bank Wachovia Corp by Wells Fargo also helped to liven up sentiment, and offset the biggest drop in U.S. payrolls in 5-1/2 years.
"We're not seeing much of a rally, though we expected a 'sell the news' reaction, with the market selling off after a brief run-up. The key will be if we stabilize by the end of the day," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
"We're still in the thick of this. It is like turning a cruise ship. You can't do it on a dime," he said.
The House passed the bill by a vote of 263-171. U.S. President George W. Bush quickly signed the bill into law, concluding two weeks of legislative haggling in Congress that has roiled and captivated global markets.
An earlier attempt by the House on Monday to pass the bill, meant to underpin banks and other financial firms staining under bad mortgage-related assets, had failed and sent stocks careening lower.
It was Wells Fargo's offer to buy Wachovia that gave a shot of optimism to investors that business was still getting done in the financial industry. Stocks rose in Europe and put the U.S. markets on solid footing at the open of trade. Asia's main stock markets had closed lower before the deal was announced.
In the U.S. stock market, benchmark indexes were up. The Dow Jones industrial average <.DJI> was up 10.75 points, or 0.10 percent, at 10,493.60. At its peak, the Dow was up 313 points.
The Standard & Poor's 500 Index <.SPX> was up just 0.19 points, or 0.02 percent, at 1,114.47, giving up a 39 point gain. The Nasdaq Composite Index <.IXIC> was up 1.24 points, or 0.06 percent, at 1,977.96.
European share prices closed with solid gains before the bill passed. The FTSEurofirst 300 index <.FTEU3> closed up 3.01 percent on the day. On the week, the index lost 1.4 percent. MSCI's main world equity index erased earlier losses to rise 0.65 percent <.MIWD00000PUS>.
Japan's Nikkei 225 index <.N225> fell 1.94 percent to a three-year closing low for its worst week in more than a year.
GRIM ECONOMIC DATA
As the world's focus has been on U.S. Congress, new data revealed America's economy continues to slow. On Friday, the Labor Department reported 159,000 non-farm jobs were lost in September, a ninth straight monthly contraction. The unemployment rate held at a five-year high of 6.1 percent.
"We've seen weaker data in history, but these look pretty decisively to be the beginning of something worse," said Pierre Ellis, senior economist at Decision Economics Inc in New York.
A second gloomy piece of economic data showed America's dominant service sector economy barely grew in September.
The Institute for Supply Management's non-manufacturing index came in at 50.2, marginally above the level of 50 that signals expansion, aided by a slight rise in new orders. The index was 50.6 in August.
Government bonds, which usually benefit from grim economic data, were overtaken by events and fell as stock prices rose.
Benchmark 10-year U.S. Treasuries cut a near 1 point loss
in price to just 6/32, pushing the yield up to 3.64 percent
U.S. rate futures nearly price in a 50 basis point interest rate cut at the Oct 28-29 Federal Open Market Committee meeting, to 1.5 percent. Expectations has slipped a bit since late Thursday.
Euro zone government bond gains were wiped out by the stock
market rally. The two-year Schatz yield
This week investors still sought the safety of the U.S. dollar, despite the turmoil created when the first financial bailout plan was put to a vote on Monday.
In the wake of the vote, the euro was bought back, rising
0.20 percent at $1.3843
Emerging sovereign debt spreads gyrated along with U.S. Treasury movements, widening by 3 basis points while emerging stocks <.MSCIEF> lost 2.1 percent, returning to an earlier two-year low.
Gold prices fell $5.30 or 0.63 percent to $829.70 an ounce