Senate to Vote on New Bailout Version

The U.S. Senate will vote on Wednesday night on a new version of the $700 billion bailout package for Wall Street, rekindling hopes that the credit crisis can be stemmed before claiming yet more banks and causing further damage to the global economy.

U.S. stocks, after suffering their worst fall in 21 years on Monday after the House of Representatives rejected the original package, roared back on Tuesday as investors bet Washington would save the package to stabilize banks and markets.

The Standard & Poor's 500 index shot up by more than 5 percent, its biggest one-day gain in six years, and Asian stocks followed suit on Wednesday, though gains there were tempered by further evidence of economic slowdown.

The revised package the Senate unanimously agreed to vote on would increase to $250,000 from $100,000 the amount of individual deposits insured by the Federal Deposit Insurance Corp (FDIC), seeking to shore up consumer and business confidence in banks.

It may also win over lawmakers trying to sell their constituents on an expensive plan funded by taxpayers and seen as benefiting wealthy financiers.

If the bailout package passes in the Senate, as expected, it will put more pressure on the House of Representatives to follow suit when it meets again on Thursday.

President George W. Bush, Treasury Secretary Henry Paulson and the two candidates hoping to succeed Bush as president, Republican Sen. John McCain and Democratic Sen. Barack Obama, reaffirmed their support for a bailout plan on Tuesday.

Both Obama and McCain said they would return to Washington for the vote, due sometime after 7:30 p.m. EDT (2330 GMT).

The plan, which would allow the Treasury to buy toxic mortgage-related assets from banks, has been the main hope for government action to unlock credit markets and head off a deeper economic downturn in the United States and abroad.

"We're right at the moment where action is needed," Dominique Strauss-Kahn, managing director of the International Monetary Fund, told Reuters. "A non-perfect plan is better than no plan at all."

U.S. regulators were also readying a revision of the "fair value" accounting rule that has led to massive charges on mortgage-related assets, and has been blamed for deepening the credit crisis. That would mean U.S. banks would not need to mark hard-to-price assets down to firesale prices.

Global money markets remained in near paralysis after London interbank offered rates shot to record levels on Tuesday, as banks remained wary of lending to each other.

The central banks of Japan and Australia kept injecting extra funds into their markets on Wednesday and overnight dollar borrowing costs stayed near 6 percent in Asia -- three times the Federal Reserve's target for overnight rates.

Global Aftershocks

After claiming some of the biggest names on Wall Street in recent weeks, shockwaves from the crisis engulfed Europe and beyond this week.

Ireland unveiled a blanket guarantee for savings held by its banks, and for the second time in a month Russia briefly shut down its stock markets.

France, Belgium and Luxembourg poured 6.4 billion euros ($9 billion) into Franco-Belgian bank Dexia to avoid defaults on its loans, and France promised new bank measures to help depositors.

Dutch-Belgian banking and insurance group Fortis, partially nationalized earlier this week, halted $4 billion worth of asset sales to China's Ping An and Deutsche Bank.

Chinese Premier Wen Jiabao expressed concern about the financial crisis but played down comparisons with the Great Depression and said he still has confidence in the U.S. economy.

"Facing up to a crisis, the crux is to pluck up one's courage and be confident, as these are more important than gold or currency," Wen was paraphrased as saying in the overseas edition of Communist Party mouthpiece the People's Daily.

Shares of the U.S. banks seen emerging with a strengthened hand after the crisis, including Citigroup , JPMorgan Chase and Bank of America , shot higher on Tuesday.

Investors favored defensive sectors such as healthcare and consumer staples for their steady earnings. Hopes for a revived rescue deal also supported the dollar and lifted oil prices above $102 a barrel.

But weak economic data from Japan, combined with a several corporate profit warnings limited Asian stock gains to around 1 percent in holiday-thinned trading.

"We've still got slowing global growth and still got a credit crisis. So I just think there's going to be ongoing volatility from here on in for the rest of the year," said ABN AMRO equity strategist Greg Goodsell in Sydney.

Sentiment among big Japanese manufacturers turned negative for the first time in five years, according to a survey, showing how upheaval on Wall Street was stifling global economic growth.

Hedge fund managers have also been bracing for a wave of investors to cash out as money rushes to safe haven assets.

Copyright 2008 Reuters. Click for restrictions.