Uncertainty over whether Washington would produce an aid package for the struggling industry is only the latest question facing investors. A surprise jump in weekly unemployment claims sent stocks lower during morning trading, extending losses from Wednesday's sell-off. But stocks came off their lows as lawmakers planned a mid-afternoon news conference to discuss efforts to help the auto industry.

Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said a compromise could put the threat of a collapse of the U.S. auto industry off the table.

He said that there seems to be a consensus among investors that "a bailout would be the best choice in a handful of bad choices."

But Wall Street appeared cautious amid uncertainty over the chances of any rescue and fears about how painful the broader economic slide will be.

"We haven't seen any sustained rally, although we're trading off the lows of the day," said Gary Townsend, president and chief executive of Hill-Townsend Capital. "There are lots of crosscurrents, generally more negative than positive," he said, "but an occasional positive catalyst has been sufficient to move the market up a bit, before more news comes forward that sends it back down."

In midafternoon trading, the Dow Jones industrial average fell 58.30, or 0.73 percent, to 7,938.98. The Dow on Wednesday tumbled 427 points to close below the 8,000 mark and lost as much as 223 points Thursday, falling below the 7,882.51 trading low seen on Oct. 10.

Broader stock indicators also fell. The Standard & Poor's 500 index fell 11.61 or 1.44 percent, to 794.97, while the Nasdaq composite index fell 3.68, or 0.27 percent, to 1,382.74.

The Russell 2000 index of smaller companies fell 3.37, or 0.82 percent, to 409.01.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 1.23 billion shares.

Bond prices rose as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note fell to 3.21 percent from 3.32 percent late Wednesday. Bond yields move opposite their price. The yield on the three-month Treasury bill, considered one of the safest assets around, fell to 0.04 percent from 0.06 percent late Wednesday.

Light, sweet crude fell $2.30 to $51.32 on the New York Mercantile Exchange. The dollar was mixed against other major currencies, while gold prices rose.

Investors who have been groping for a bottom to the yearlong market rout have been worried that Washington's disagreements over whether to bail out the auto industry could lead to bankruptcy of major automakers like General Motors Corp. and could send ripple effects through the economy _ including a further blow to consumer confidence.

With new hopes that a deal could be reached automakers reversed steep losses. General Motors rose 27 cents, or 9.6 percent, to $3.06, while Ford Motor Co. rose 27 cents, or 21 percent, to $1.53. Chrysler LLC isn't publicly traded.

Overseas, Japan's Nikkei stock average fell 6.9 percent, while Hong Kong's Hang Seng Index slid 4.04 percent. Britain's FTSE 100 fell 3.26 percent, Germany's DAX index fell 3.08 percent, and France's CAC-40 fell 3.48 percent.

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