NEW YORK » Pessimism about a protracted economic downturn washed over the financial markets yesterday, sending stocks plunging and further tightening the credit markets. Reports on declining factory orders and a seven-year high in jobless claims stoked fears that the government's financial rescue plan won't ward off a recession, and the Dow Jones industrials skidded nearly 350 points.

Investors appeared to be settling in for a prolonged economic winter. The main concern is that the $700 billion bailout plan won't be enough to stimulate growth, and economic reports delivered yesterday show that the U.S. continues to struggle.

The government said the number of people seeking unemployment benefits rose last week and that demand at the nation's factories has fallen by the largest amount in nearly two years. The market is interpreting the U.S. Commerce Department report on factories as a sign that tight credit conditions are hitting manufacturers.

“;The economy is what's driving this weakness,”; said Subodh Kumar, global investment strategist at Toronto-based Subodh Kumar & Associates. “;I think now what's going on is a focus on the economic weakness in a whole bunch of areas.”;

He also said, “;the next couple of days are going to be pretty intense politically”; as Wall Street girds for another vote on the financial bailout plan. The bill that passed the Senate late Wednesday will be sent to the House as soon as today.

The yield on the 3-month T-bill, the safest type of investment, fell to 0.70 percent from 0.79 percent late Wednesday. The historically low yields indicate investors are willing to accept the smallest of returns to safeguard their money.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.64 percent from 3.74 percent late Wednesday.

The Dow fell 348.22, or 3.22 percent, to 10,482.85.

Broader stock indicators also fell sharply yesterday. The Standard & Poor's 500 index fell 46.78, or 4.03 percent, to 1,114.28, and the Nasdaq composite index fell 92.68, or 4.48 percent, to 1,976.72.

The Russell 2000 index of smaller companies fell 33.92, or 5.05 percent, to 637.67.

Declining issues led advancers by a 3 to 1 margin on the New York Stock Exchange, where consolidated volume came to 6.16 billion shares, up from 5.59 billion on Wednesday.

Light, sweet crude fell $4.56 to settle at $93.97 a barrel on the New York Mercantile Exchange. Gold and other commodities also declined during the session.

The U.S. Labor Department reported yesterday that initial claims for unemployment benefits rose by 1,000 last week to a seasonally adjusted 497,000, above expectations for a 475,000 increase.

Beyond employment, the government reported that orders for manufactured goods fell by 4 percent in August from July.