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NEW YORK (AP) -- U.S. stock futures were falling Sunday night, a sign that investors are still nervous about the government's $700 billion rescue plan to resuscitate frozen credit markets.
But take it from Treasury Secretary Hank Paulson: If you want to know whether the maelstrom that seemed poised to take down financial markets last week has eased, you have to pay attention to what companies and individuals are doing with their cash.




"The stock market going up and down is not what we should be looking at. We need to look at what's going on in the credit markets, and they are still very fragile right now and frozen," Paulson said on NBC's "Meet the Press."

And on that score, the early signs were promising. Yields on Treasury securities were rising Sunday night, a sign that the flight-to-quality push by panicked investors last week to put their cash in what they viewed as only the safest of investments was easing.

But in late Sunday trading, U.S. stocks futures weren't faring as well, after rallies on Thursday and Friday that pushed up the Dow Jones industrial index by almost 800 points -- recouping their losses from earlier in the week. Dow Jones futures dropped almost 200 points at one point late Sunday, while Standard & Poor's 500 index futures and Nasdaq 100 index futures also fell. Asian markets traded higher early Monday, catching up with Wall Street's rally Friday.

Analysts said the lower U.S. stock futures, however, could be a reflection of comments by Democratic lawmakers that they want to add provisions to help homeowners and others to the bare-bones approached advanced by Paulson. Congressional Democrats said, however, that they understood the need for urgency.

Administration and congressional officials spent the weekend in Washington hammering out details of a plan to allow the government to create a repository for the toxic debt that has hobbled many parts the credit markets and has battered the U.S. economy for more than a year.

While markets were relieved at the prospect of a deal, analysts said investors will want to see quick action. "If the political will for action takes longer, then I think the markets will have renewed risk," said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto.

What spooked policymakers and investors alike was a rush by institutional investors last Wednesday and Thursday to pull billions of dollars out of what were thought to be ultra-safe money-market mutual funds that threatened to unhinge credit markets. Most of that money was quickly transferred into funds holding Treasury securities.

To meet demands for redemptions, many money-market funds had to dump their holdings of commercial paper at fire-sale prices. And fearing more demands for cash from fund holders, they also all but ceased buying these short-term loans that many companies use to fund daily operations.

The ripple effects for the overall economy would have been swift, experts say. If companies were unable to find willing buyers for maturing commercial paper, it could have forced them to force them to quickly scale back routine operations, furlough workers and even make it difficult for some to pay their employees.

A separate government initiative announced on Friday to temporarily provide guarantees to money-market funds helped ease the panicked trading. And the Treasury on Sunday said the backing will be extended to both taxable and tax-exempt money-market funds.

One sign of whether that thaw continues this week in the commercial paper market may show up in demand for safe-haven investments like short-term Treasury bills -- seen as the next safest thing to cash.

"We have a finger in the dike right now," said Howard Simons, strategist with Bianco Research in Chicago. "If you stem the outflow from the money-market funds, then they have to buy something and it'll probably be commercial paper, albeit with a little more scrutiny."

On Wednesday, before talk of the government plan emerged, demand for the 3-month Treasury bill was so high that the yield it pays investors briefly slipped into negative territory for the first time since 1940.

If the T-bill's price falls and its yield rises when trading resumes Monday, that could mean investors are pulling money out and getting back into riskier investments like stocks and commercial paper.

"Then you'll know that credit stress is relaxing," Simons said.

In addition to watching yields on short-term Treasury bills, investors will be looking at indicators such as the SPDR Lehman High Yield Bond exchange-traded fund. The ETF was trading nearly 3 percent above net asset value Friday afternoon, after trading more than 4 percent below net asset value the day before -- suggesting greater confidence.

The government felt forced to step in last week after the bankruptcy filing of investment bank Lehman Brothers Holdings Inc. and financial troubles at American International Group Inc., the world's largest insurer. Worries about bad debt sent many investors rushing out of corners of the market normally seen as safe.

Big institutional players, not individual investors, touched off a retreat from some money-market funds after The Reserve Primary Fund on Tuesday "broke the buck," or allowed investors to lose money. Investors yanked $224 billion from money-market funds in the seven-day period ended Thursday, including a withdrawal of about $89 billion on Wednesday alone, according to industry watcher iMoneyNet.

Those withdrawals weighed on demand for companies' short-term IOUs. The commercial paper market shrank by $52.1 billion to $1.7 trillion for the week ended Sept. 17, the biggest weekly drop in 10 months, according to Federal Reserve data.

But the enthusiasm for a government rescue may not extend to all areas of the credit markets. Paulson has suggested that the government might buy the bad mortgage assets through a reverse-auction process, but weaker banks that end up taking large write-downs through such a process could still falter.

Lending between banks, for example, may remain locked until investors nervous about where bad debt might reside get more clarity on how the bailout plan will work, said Lena Komileva, an economist with London-based interdealer broker Tullett Prebon.

"The enthusiasm seen in the stock market rally has not yet trickled down to credit markets," Komileva said. "The market is still cautious about whether the (rescue plan) will be the ultimate solution to replenish credit supplies."