Rescue legislation sailed through the House on Wednesday aimed at helping 400,000 strapped homeowners avoid foreclosure and preventing the collapse of troubled mortgage companies Fannie Mae and Freddie Mac.

Cash-strapped homebuyers and borrowers facing foreclosure will get some relief from a housing bill passed by the House on Wednesday but the bill won't solve the deep-rooted ills of the U.S. housing market.

The dollar dropped against the yen Thursday, dragged down by disappointing news in the U.S. housing sector and steep losses on Wall Street.

Rescue legislation sailed through the House Wednesday aimed at helping 400,000 homeowners avoid foreclosure and to prevent Fannie Mae and Freddie Mac from collapsing.

Congress looks set to pass a housing rescue bill that will backstop Fannie Mae and Freddie Mac, create tougher oversight of the mortgage finance giants and spend billions to prevent home foreclosures.

Treasury Secretary Henry Paulson said Wednesday that agreement on a sweeping housing rescue bill will send a strong message to investors around the world and will be key to helping the nation turn the corner on the housing crisis.

Wall Street so far has not merely survived earnings season, but has thrived as banks mostly lived up to lowered expectations.

A federal rescue of Fannie Mae and Freddie Mac could cost taxpayers $25 billion, congressional budget experts said, as the House scheduled a Wednesday vote on legislation that would tap the mortgage giants' profits to cover any losses from saving 400,000 homeowners from foreclosure.

Shares of Fannie Mae and Freddie Mac surged after President Bush dropped opposition to a housing rescue bill, which would offer a lifeline to the mortgage giants.

Industry data to be released Wednesday will show whether home loan applications continued to rise as mortgage rates fell last week.

The government would help struggling homeowners get new, cheaper loans and be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion as part of legislation that aims to calm the chaotic housing market.

A Bush administration plan to bolster Fannie Mae and Freddie Mac could cost U.S. taxpayers $25 billion, congressional analysts said in a report that triggered debate as Congress moved toward approving a major housing market rescue package.

The dollar hit a one-month peak against the yen and a two-week high against the euro Wednesday, getting support from a slide in oil prices and a recovery in risk appetite.

E*Trade Financial Corp <ETFC.O> reported a wider-than-expected second-quarter loss on Tuesday, and warned it could see more losses as the economy deteriorates and more loans sour.

By Jonathan Spicer