NEW YORK » Wall Street caved in to its economic anxieties and closed lower yesterday, giving up an early rally over a stimulus package in China and refocusing on the acute pullback in spending that is pummeling U.S. companies.

Stocks got only a short-lived boost from China's $586 billion plan to boost its economy through a mix of spending, subsidies, looser credit policies and tax cuts. The package could benefit multinational companies with business in China such as General Electric Co. and Caterpillar Inc.

But Wall Street's optimism quickly waned, as it has tended to do since the mid-September downfall of Lehman Brothers Holdings Inc. and government takeover of the troubled insurance giant American International Group. Market participants realized that while China's stimulus is a positive sign that governments around the world are working to fix the global economy, the stimulus itself will likely have only a limited effect in the United States.

AIG got more money from the U.S. government, but the nation's struggling automakers have yet to hear whether they, too, will get federal aid.

The Dow fell 73.27, or 0.82 percent, to 8,870.54. The Standard & Poor's 500 index fell 11.78, or 1.27 percent, to 919.21, and the Nasdaq composite index fell 30.66, or 1.86 percent, to 1,616.74.

The U.S. government said it would invest $40 billion into AIG, which also reported a nearly $25 billion third-quarter loss yesterday. AIG, which got its first bailout in September, has so far received a total of $150 billion in government aid.

The government's investment yesterday helped the insurer's stock rise 26 cents, or 12 percent, to $2.37, but raised worries that problems in the financial sector might be worse than anticipated.

The Treasury auctioned three-year Treasury notes for the first time since May 2007, and the auction saw strong buying. Meanwhile, the three-month Treasury bill's yield fell to 0.22 percent from 0.28 percent late Friday, and the yield on the benchmark 10-year Treasury note fell to 3.76 percent from 3.79 percent late Friday.

Lower yields indicate stronger demand.

The Russell 2000 index of smaller companies fell 12.69, or 2.51 percent, to 493.10.

A barrel of light sweet crude rose $1.37 to settle at $62.41 on the New York Mercantile Exchange.

The dollar was mixed against other major currencies, while gold prices rose.

In earnings news, Fannie Mae posted yesterday a $29 billion loss in the third quarter as it took a massive tax-related charge, and said it may have to tap the government's $100 billion lifeline in the coming months.

The mortgage finance company, seized by federal regulators more than two months ago, had a loss of $13 a share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax assets. That compares with a loss of $1.4 billion, or $1.56 a share, in the year-ago period.