US House approves bailout package

The US House of Representatives approved a $700 billion bailout package for US banks, under pressure from all sides as the effort to head off a spreading financial crisis hung in the balance.

The House approved the financial rescue plan by a vote of 263-171, sending the measure to US President George W. Bush and concluding two weeks of legislative haggling in Congress that had roiled and captivated global markets.

Wells Fargo & Co stepped in to buy Wachovia Corp, a bank badly hobbled by the credit crisis, providing a rare bit of positive news for the financial sector and sending markets higher.

In new signs of spreading crisis, California said it was running out of money, France said the world stood on the "edge of the abyss" and European leaders were divided over their own response to the global crisis.

The House had shocked world markets on Monday by rejecting a previous draft. With elections on November 4, lawmakers from both parties were wary of voter backlash in asking taxpayers to pay for Wall Street's mistakes.

Yesterday, speaker after speaker from both parties said rejecting the bailout could have devastating consequences for an already slowing US economy, arguing the Bill was as important for small businesses, homeowners, students and pensioners as it was for the financial sector.

"While the focus has been on the Dow Jones and Wall Street, we are addressing the real pain felt by Mr and Mrs Jones on Main Street," said House Speaker Nancy Pelosi, a California Democrat.

Said House Republican leader John Boehner: "We have to act, and if we do not this crisis is likely to worsen and put us into an economic slump like many of us have never seen."

The Bill would allow the US Treasury to buy toxic debt from US banks, which many economists said is needed to head off the worst financial crisis since the Great Depression.

US stocks rose on hopes for the bailout plan and the deal to buy Wachovia.

Wells Fargo, one of the strongest US banks, said it didn't need the government help that Citigroup Inc required in an earlier effort to rescue Wachovia.

The dollar continued to rally against the euro and European stocks rose about three per cent.

Earlier yesterday, the US reported its biggest monthly job loss in five-and-a-half years, more evidence of an approaching recession. Data showed the US services sector holding up.

"The data has been horrible all week long. It absolutely does put pressure on them to get this rescue act passed," said Fred Dickson, market strategist at D.A. Davidson and Co in Lake Oswego, Oregon. "It's a Bill with risks, but it's a plan and the market needs a plan."

In California, Governor Arnold Schwarzenegger warned the US Treasury the state may need short-term federal loans because it can't raise money in frozen credit markets.

A collapse in the US housing market and resulting bad mortgages have shattered confidence in the financial sector, with banks across the US and Europe needing support from governments or outside investors this week.

Interbank lending and credit to businesses and private individuals has all but seized up. Central banks have injected billions of dollars to maintain some flow of funds.

French Prime Minister François Fillon, whose country is hosting an emergency summit with Italian, British and German leaders today, said only collective action could solve the financial crisis. He said he would not rule out any solution to stop any bank failing.