WASHINGTON (AP) -- The federal budget deficit soared to $454.8 billion in 2008 as a housing collapse and efforts to combat the economic slowdown pushed the tide of government red ink to the highest level in history.

The Bush administration said Tuesday the deficit for the budget year that ended Sept. 30 was more than double the $161.5 billion recorded in 2007.

It surpassed the previous record of $413 billion set in 2004. Economists predicted a far worse number next year as the costs of the government's rescue of the financial system and the economic hard times hit the nation's balance sheet.

Some analysts believe that next year's deficit could easily top $700 billion, giving the next president a formidable challenge.

The administration blamed this year's record deficit on a litany of economic woes. The prolonged housing slump sharply reduced economic growth and has sent the unemployment rate rising, developments that reduce tax revenues.

"This year's budget results reflect the ongoing housing correction and the manifestation of that in strained capital markets and slower growth," Treasury Secretary Henry Paulson said in a statement accompanying the deficit report. "While it will take time to work through this period, we will overcome the current challenges facing our nation."

Democrats said the administration's economic policies were responsible for the growing deficit. They noted

NEW YORK (AP) -- Wall Street ended a relatively calm session with a moderate loss Tuesday as investors, while happy with the government's plans to spend up to $250 billion to buy stock in private banks, decided to cash in profits from the previous day's massive advance as they refocused their attention on the economy.

It was the first time in nine sessions that the Dow Jones industrial average didn't close with triple-digit losses or gains although it did swing in a 700-point range. The Dow closed down 76 points a day after its record 936-point jump.

Big advances by many bank stocks helped offset some of the declines in the Dow and the Standard & Poor's 500 index, giving them a better showing for the day than the Nasdaq composite index, which fell more than 3 percent. The technology-dominated Nasdaq also lagged ahead of a profit report from Intel Corp., as investors were reminded of the troubled economy and its impact on corporate earnings.

Profit-taking set in after the Dow surged more than 400 points at the opening. Wall Street is expected to see jittery trading in the weeks and perhaps months ahead because of worries about the economy; stocks also tend to ratchet up and down when they're recovering from a plunge like the one Wall Street has suffered in the past two weeks.

"We don't know if the bottom is in," said Lincoln Anderson, chief investment officer and chief economist at LPL Financial, referring to the market's advance Monday after huge losses last week. "We certainly expect

WASHINGTON (AP) -- Big banks started falling in line Tuesday behind a rejiggered bailout plan that will have the government forking over as much as $250 billion in exchange for partial ownership -- putting the world's bastion of capitalism and free markets squarely in the banking business.

Some early signs were hopeful for the latest in a flurry of radical efforts to save the nation's financial system: Credit was a bit easier to come by. And stocks were down but not alarmingly so after Monday's stratospheric leap.

The new plan, President Bush declared, is "not intended to take over the free market but to preserve it."

It's all about cash and confidence and convincing banks to lend money more freely again. Those are all critical ingredients to getting financial markets to function more normally and reviving the economy.

The big question: Will it work?

There was a mix of hope and skepticism on that front. Unprecedented steps recently taken -- including hefty interest rate reductions by the Federal Reserve and other major central banks in a coordinated assault just last week -- have failed to break through the credit clog and the panicky mind-set gripping investors on Wall Street and around the globe.

The Dow Jones industrials declined 77 points on Tuesday after piling up their biggest point gain ever on Monday on news of Europe's rescue plan and in anticipation of the United States' new measures.

Initially the U.S. government will pour $125 billion into nine major banks with the hope that they will use