NEW YORK » Financial markets extended their declines yesterday as investors worried that lawmakers were beginning to doubt the necessity of a broad government bailout for financial institutions as a way to revive ailing credit markets.

Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second-guessing from lawmakers than some investors had expected. The Dow Jones industrials, which had been higher for the first half of the session ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.

The market remains uncertain about how long it will take for the bailout plans to take effect, and assuming they do, how effective they will be.

“;There's skepticism about whether the $700 billion number is the right number,”; said Jim Herrick, manager and director of equity trading at Baird & Co.

Demand for short-term Treasurys remained high. The yield on the 3-month T-bill fell to 0.79 percent from 0.88 percent on Monday; last week, it was around zero after investors flooded money into T-bills as the credit markets seized up. That spurred government officials to propose a debt buyout plan.

The yield on the benchmark 10-year Treasury note, which trades opposite its price, fell to 3.80 percent from 3.85 percent late Monday.

The dollar, whose decline Monday drove some of the frenetic trading in other markets, regained some of its lost ground against the euro, while gold prices declined after starting the week with a big advance.

The Dow fell 161.52, or 1.47 percent, to 10,854.17 after having risen more than 125 points in the early going and then falling by more than 180. With Monday's 370-point decline, the blue chips are down 534 points, or 4.69 percent, for the week.

Broader stock indicators also fell yesterday. The Standard & Poor's 500 index fell 18.87, or 1.56 percent, to 1,188.22, and the Nasdaq composite index fell 25.65, or 1.18 percent, to 2,153.33.

Investors also were watching oil prices after anxiety over the government bailout and a huge short-covering rally pushed crude to the biggest one-day gain.

Light, sweet crude for November delivery fell $2.76 to settle at $106.61 on the New York Mercantile Exchange. The October contract, which expired Monday, surged as much as $25.45 to $130 before falling back to settle at $120.92, an advance of $16.37.

Declining issues outnumbered advancers by about 5 to 2 on the New York Stock Exchange, where consolidated volume came to 5.11 billion shares, compared with 5.22 billion traded Monday.

The Russell 2000 index of smaller companies fell 11.25, or 1.56 percent, to 709.19.

Bank of America Corp. fell 85 cents, or 2.5 percent, to $33.30, while Washington Mutual Inc. fell 13 cents, or 3.9 percent, to $3.20.