NEW YORK (AP) - Tension grew in the financial markets yesterday, sending stocks mostly lower as investors worried about the effectiveness of a still-emerging government plan to rescue banks from crippling debt. The credit markets also showed added strain, with rising demand for short-term Treasury bills, considered the safest of investments.

Wall Street was calmer than during the first two days of this week, with stocks meandering in and out of positive territory while investors tried to determine what shape the $700 billion plan might take. But the atmosphere was uneasy enough to erode the market's initial enthusiasm over investor Warren Buffett's decision to invest $5 billion in Goldman Sachs Group Inc.

As the session wore on, investors focused on broader concerns that the dealmaking in Washington could produce less potent medicine than proponents say is necessary to aid moribund credit markets. Fear about bad debt on the books of financial companies has led to tightness in credit markets. That has made it difficult for businesses and consumers alike to borrow money.

Treasury Secretary Henry Paulson told the House Financial Services Committee that he agreed to limit the pay of Wall Street executives whose companies might benefit from the proposed $700 billion measure for financial services firms.

Mr. Paulson appeared with Federal Reserve Chairman Ben Bernanke before Congress for a second day to brief lawmakers on the plan. Their appearance on Capitol Hill Tuesday unnerved investors, who questioned whether lawmakers were beginning to doubt the necessity and form of the government bailout.

The waiting was clearly wearing on the credit markets, raising concern again about liquidity.

Demand for short-term government Treasuries increased as investors again sought safe places to keep cash. The yield on the three-month Treasury bill, considered the safest short-term financial asset, was at 0.49 percent late yesterday, down from 0.79 percent late on Tuesday. Last week, demand spiked so high that the yield briefly dipped into negative territory; investors were so focused on putting their money in safe assets that they have been willing to accept very little or even negative returns.

In other Treasury trading, the yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.80 percent late on Tuesday.

"I think you're seeing a lot of tough talk from politicians who don't want to seem like they're rolling over for Wall Street and, normally, people would see that for what it is. But right now investors are exceptionally nervous," said Stephen Massocca, co-chief executive of Pacific Growth Equities in San Francisco.

According to preliminary calculations, the Dow Jones industrial average fell 29, or 0.27 percent, to 10,825.17 after moving in and out of positive territory. The decline leaves the Dow down more than 560 points, or about 5 percent, for the week.

Broader stock indicators were mixed. The Standard & Poor's 500 index slipped 2.35, or 0.2 percent, to 1,185.87, and the Nasdaq composite index rose 2.35, or 0.11 percent, to 2,155.68.

The dollar, whose struggles earlier this week contributed to extreme volatility in other markets, was mixed. Meanwhile, gold prices rose.

Light, sweet crude for November delivery fell 95 cents to $105.66 a barrel on the New York Mercantile Exchange.

Shares of Goldman Sachs Group Inc. rose $4.85, or four percent, to $130 yesterday after Buffett's Berkshire Hathaway Inc. said late on Tuesday it was investing at least $5 billion in Goldman - a move Wall Street took as a sign of support for the independent investment bank model. Besides buying $5 billion in preferred stock, Berkshire also got warrants to buy another $5 billion in Goldman's common stock.

Goldman Sachs also said it will sell $5 billion worth of common stock to the public; the company and Morgan Stanley earlier this week were granted approval to become bank holding companies, which would help them strengthen their balance sheets.

Beyond Goldman, investors put money into defensive areas like health care and utilities. Merck & Co. rose 72 cents, or 2.3 percent, to $31.47, while CenterPoint Energy Inc. rose 29 cents, or two percent, to $14.53.

Investors appeared unfazed by a larger-than-expected drop in sales of existing homes in August as their focus remained on the bailout. The National Association of Realtors said sales fell by 2.2 percent; sales had been expected to fall by 1.6 percent, according to economists surveyed by Thomson/IFR. The number of unsold homes on the market dropped by seven percent from a record set in July, marking the steepest drop in inventory since December 2006.

Declining issues outnumbered advancers by about three-to-two on the New York Stock Exchange, where volume came to 1.08 billion shares.

The Russell 2000 index of smaller companies fell 11.42, or 1.61 percent, to 697.77.

Overseas, Japan's Nikkei stock average rose 0.20 percent. Britain's FTSE 100 fell 0.79 percent, Germany's DAX index fell 0.26 percent, and France's CAC-40 fell 0.61 percent.