Volatility again swept the financial markets today as investors grew nervous about an amorphous government plan to buy $700 billion in banks’ mortgage debt. Stocks fell sharply, taking the Dow Jones industrials down more than 370 points, while investors sought safety in hard assets such as gold and oil, which at one point shot up more than $25 a barrel.

The dollar skidded lower, contributing to oil’s surge, while the credit markets were still uneasy but not showing the frantic trading they saw last week. Oil’s rise of $16.37 to a closing price $120.92 a barrel came as investors snapped up supplies to cover a contract that expired at the end of today’s session. Crude’s advance — it was up $25.45 at one point — showed the intensity of emotion in the market, and still-active contracts also rose sharply.

Gold, also in demand as a safe haven, rose $40.90 to $905.60.

While investors last week were relieved that federal authorities were constructing a plan to relieve the nation’s banks of their toxic assets, many weren’t waiting for the details to emerge before seeking safety. Wall Street is not sure how successful the plan might be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.

Bush administration officials and congressional leaders have been meeting on the rescue plan, the thrust of which congressional leaders have endorsed. Many market observers are hoping for details of the plan to emerge by midweek and delays could weigh further on investor sentiment.

“We need to have confidence built,” the chief investment officer at Cabot Money Management Inc. in Salem, Mass., Rob Lutts, said. “This government opening of the checkbook — it’s a stopgap measure that will calm people and help us buy a little bit more time but ultimately what we need to see is more confidence.”

While investors try to determine how helpful the government’s lifeline might be they also were absorbing more news about the rapid changes in the banking sector. Morgan Stanley said it is working to sell up to a 20% stake to Japan’s Mitsubishi UFJ Financial Group Inc., perhaps a sign that the government’s stabilizing hand will make investors more willing to put money into banks.

The announcement comes after the Federal Reserve late yesterday granted Morgan Stanley and Goldman Sachs, the country’s last two major investment banks, approval to change their status to bank holding companies. The change of status will allow the companies to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both. However, they also will be subject to more regulation.

That shift came a week after negotiations failed to save Lehman Brothers Holdings Inc. That and the government’s plan to bail out insurer American International Group Inc. helped lead to a seizing up of the credit markets that spurred the government to formulate its plan to rescue companies from their bad debt, which was in turn destroying confidence in the credit markets.

The yield on the Treasury’s 3-month Treasury bill was at 0.90% today, down from 0.94% late Friday, indicating that investors were still willing to take low returns on a safe asset. However, the yield was well above yields around zero at the height of last week’s frenetic buying; yields move in the opposite direction from price. Short-term Treasurys are seen as the safest place to put cash.

The Treasury’s 2-year note’s yield was at 2.12%, down from 2.13% Friday. The yield on the 10-year benchmark Treasury was unchanged at 3.82% from late Friday.

According to preliminary calculations, the Dow fell 372.75, or 3.27%, to 11,015.69. The retreat comes after the stock market’s best two-day advance in years so some retrenchment, especially amid the anxiety on the Street, wasn’t unexpected.

Broader stock indicators also declined. The Standard & Poor’s 500 index fell 47.99, or 3.82%, to 1,207.09, and the Nasdaq composite index fell 94.92, or 4.17%, to 2,178.98.