George Bush

Hong Kong/London, Oct. 2 (Reuters): The US Senate endorsed a revised $700-billion plan to tackle a financial crisis that has drawn warnings of approaching economic catastrophe, leaving the House of Representatives to decide its fate.

The House rocked global markets this week by rejecting an earlier version. US President George Bush, speaking after Wednesday night’s 74-25 Senate vote, called the bailout “essential to the financial security of every American”.

But the crisis has spread well beyond US shores and beyond the financial sector. Top auto makers, including General Motors, gathering in Paris warned of tough times amid concerns that slowing demand could force production cuts and job losses.

Market participants warned that the rescue package was not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.

“Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilise,” said Masamichi Adachi, senior economist at JPMorgan in Tokyo.

“It’s a completely different world now. All the things the US authorities are doing now are simply aimed at preventing a global meltdown.”

The bailout plan, equivalent to some $2,300 per American, is intended to reinvigorate credit markets and inter-bank lending that has frozen up while overleveraged financial institutions staggered under the weight of failed mortgages. It has stirred fierce criticism from those who see it as help for a Wall Street guilty of taking reckless risks in pursuit of short-term profit.

Under the deal, the treasury would take on illiquid assets held by banks, in the hope of restoring confidence and unfreezing credit markets vital to the wider economy.

President Bush, his personal authority eroded by the approaching end of his term in office, welcomed Senate passage of the package and urged the House to quickly do the same when it votes, probably on Friday.

“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.

Senate leaders hope that sweetening the plan with a tax cut and extended federal protection for bank deposits can turn “no” voters in the House into supporters. On Monday, the House rejected the previous version of the plan by a 228-205 vote.

“It’s still uncertain. I think it is likelier to pass than before,” House Financial Services Committee chairman Barney Frank said.

“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 said.

Many Americans resent the idea that Wall Street is being “bailed out” at taxpayer expense, and have made their views clear in emails and calls to Washington, putting pressure in particular on vulnerable members of the House.

The crisis has become the biggest issue in forthcoming US elections.

Both presidential candidates, Republican John McCain and Democratic Barack Obama, voted for the package.