The U.S. Senate approved a $700 billion bailout of the financial industry late last night that political and financial leaders called crucial to averting economic catastrophe.
The bill is aimed at reinvigorating worldwide credit markets and interbank lending that had frozen up while overleveraged financial institutions staggered under the weight of failed mortgages.
Amid warnings that failure to act could plunge the country into a depression, the Senate voted 74 to 25 in favor, sending the measure to the House of Representatives, probably for a vote on Friday.
However, the Senate vote failed to energise markets in Asia, with stocks lower on Thursday morning and Treasuries up as investors grew increasingly worried that recession looms and pressure built on central banks for an interest rate cut. The dollar gave up early gains.
"The plan will improve the financial position of the banking system but will not stop a recession," Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong, wrote in a note. "We expect a short-term bounce for stocks and commodities but as global recession takes hold, both will see new lows. Treasuries and the dollar should fall on rising fiscal deficit."
Attention now shifts to the House, which had rejected a similar measure on Monday, sending global markets into a tailspin. In response, congressional leaders added two sweeteners to the bill -- a tax cut and extended federal protection for bank deposits -- that could turn "no" voters into supporters.
U.S. President George W. Bush praised Senate passage of the package and urged the House to quickly do the same.
"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said in a written statement. "The bill the Senate passed is essential to the financial security of every American," he said.
The House is now more likely to approve the package, a key member said after the Senate vote.
"It's still uncertain. I think it is likelier to pass than before," House Financial Services Committee Chairman Barney Frank said in an interview on CNN.
"The main change is reality. I think that it's not possible now to scoff at the predictions of doom if we don't do anything," the Massachusetts Democrat added.
Treasury Secretary Henry Paulson, whose original three-page proposal grew to hundreds of pages when Congress got involved, praised the Senate vote and urged the House to act swiftly to ratify it.
Should the House uphold the bill, it would go to the White House for signature into law by President Bush.
"This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going," Paulson said.
Central bankers and pensioners worldwide were counting on the rescue plan to empower the U.S. Treasury to buy distressed assets from financial firms, clean up their balance sheets and jump-start lending.
Stocks in Tokyo and elsewhere in Asia were down more than 1 percent. Oil gained $1 a barrel.
The credit crisis also reverberated among European banks while recessionary signals mounted in the United States.
U.S. factory activity shrank in September to its lowest since the 2001 recession and major automakers reported plunging U.S. sales for September, led by a 34 percent slide at Ford Motor Co
In Europe, France and Germany clashed over the idea of a U.S.-style financial rescue fund for Europe amid further signs of contagion from the global credit crisis.