Oct 2, 2008

World - US Senate approves $700bn bailout

By Daniel Trotta and Richard Cowan

NEW YORK/WASHINGTON (Reuters) - The U.S. Senate approved a $700 billion bailout of the financial industry on Wednesday 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, more than 60 Senators voted in favor, exceeding the majority needed to send the measure to the House of Representatives, probably for a vote on Friday.

The House had rejected a similar measure on Monday, sending global markets into a tailspin, so 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.

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.

The vote came amid early trade in Asian markets and the dollar climbed near a one-year peak against a basket of currencies while Japanese stocks extended losses.

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.

Italy's UniCredit became the latest bank under scrutiny after backing away from its 2008 earnings targets.

The U.S. vote capped another whirlwind day in the markets in which shares of bellwether U.S. conglomerate General Electric Co plunged as much as 9 percent on concerns about future earnings until super-investor Warren Buffett took a $3 billion stake.

(Writing by Daniel Trotta; Editing by Gary Hill)

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