Traders work on the floor of the New York Stock Exchange on Monday. (Richard Drew/Associated Press)

Stock markets in Canada and the United States stumbled badly in trading on Monday, as investors appeared to have new doubts that Friday's announcement of a U.S. bailout would solve last week's financial crisis.

In Toronto, the TSX fell 1.91 per cent, or 246.79 points. The index ended the day at 12,666.20.

In the United States, the Dow Jones industrial index finished Monday off 385.97 points, or 3.17 per cent, at 11,023.82.

In both markets, financial issues at the centre of a proposed $700-billion US rescue plan from Washington lost value.

Investors in Canada and the United States were still digesting the news that the U.S. administration and Congress still need to hammer out the details of the bailout plan, announced by Treasury Secretary Henry Paulson.

Stock buyers, however, also realized that the proposal help would pump billions of U.S. dollars into the world's financial system, a factor bound to place downward pressure on the American currency.

The euro gained 1.9 per cent versus the U.S. dollar in trading Monday.

The Canadian dollar fare better on the day, helped by a record jump in oil prices. The loonie gained 1.53 cents against the American dollar, rising to 96.77 cents US.

Under the so-far sketchy U.S. proposal, the government plans to buy up non-performing mortgage-backed commercial paper and other toxic financial assets from ailing financing companies at some fraction of their face value. The administration would seek to sell the bonds and other bad loans at some future point when credit markets revive.

Investors had applauded the plan and bought stocks in a frenzy.

Dow surges

The Dow Jones surged nearly 800 points on Thursday and Friday combined, its best two-day showing since 2000.

In Canada, the TSX jumped almost 850 points on Friday alone.

Besides the U.S. rescue proposal last week, the world's major central banks pumped huge amounts of liquidity in a bid to fill up a global borrowing pool that was in danger of drying up completely.

Last Monday's bankruptcy of Lehman Brothers combined with the takeover of Merrill Lynch and American International Group Inc. had lenders exiting borrowing markets while they waited to see which corporations would survive the ensuing financial meltdown.

Paulson's plan is an attempt to reassure international equity and borrowing markets that the country's banking and brokerage system is fundamentally sound.

On Monday, finance officials from the Group of Seven industrialized countries said they had confidence in the American plan.

"We are ready to take whatever actions may be necessary, individually and collectively, to ensure the stability of the international financial system," the finance officials said in a statement.

On Saturday, U.S. President George W. Bush urged Congress to work with the White House to enact the legislation quickly.

The Bush administration spent the weekend negotiating the details of the proposal with members of Congress with the expectation that it can be passed this week.

The Democrats have said the plan should include more protections for homeowners and taxpayers and they want time to negotiate it. They have also called for more oversight of which bad loans are bought and limits on executive payouts.

Oil jumps, stocks slip

On Monday, crude prices soared more than $25 US a barrel, the biggest one-day jump ever, partially because of the belief that the U.S. plan would boost the global economy.

As well, however, the shrinking American currency tends to attract buyers into the commodity.

"We're off to the races again,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. “There's a renewed scramble for commodities because of a general weakness in the dollar."

The weakening dollar also weighed heavily on the U.S. market as investors began viewing the currency as a proxy of U.S. economic strength and decided to sell stocks.

With files from the Associated Press