House to Take Another Crack at Bailout

A controversial bill to provide $700 billion to help bail out Wall Street will be sent to the floor of the House of Representatives Friday for debate and a vote, House Majority Leader Steny Hoyer said Thursday.

In announcing the action, Hoyer said he was "hopeful that there will be bi-partisan majority support" for the legislation.

Earlier on Thursday, House Speaker Nancy Pelosi said she would not schedule the floor debate until she thought there were enough votes in hand to pass it.

On Monday, the House defeated the bailout plan.

Since then, the Senate has passed it, and added in tax cuts and expanded federal insurance for bank deposits in the hopes of attracting enough additional votes in the House for final passage.

Markets Fall Ahead of House Vote

A darkening economic outlook fueled by the global credit crisis dragged Asian shares lower and added pressure for the passage of the bailout package.

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Worries grew that even if Washington agrees on the massive rescue package, it will not be enough to resolve deeper-rooted weakness as new data showed that a U.S. recession is nearing and European Central Bank President Jean-Claude Trichet said Europe's economy was worsening.

Stocks in Tokyo closed down 1.9 percent, falling below the key 11,000 level, while elsewhere in Asia they were off by 1.5 percent, despite optimism among U.S. House Democratic leaders that legislation to mop up illiquid bank assets would win approval.

"Investors expect the U.S. House to approve the bailout, but even if that happens, it would have a neutral impact on the market as its effectiveness is still questionable," said Takahito Murai, general manager of equities at Nozomi Securities in Tokyo.

On Monday, the House unexpectedly rejected a previous version of the bailout package, sending markets into a tailspin.

Wall Street endured a dismal day on Thursday, as stocks dropped 4 percent and a seizing up in money markets drove a rally in the dollar.

Latin American stocks and currencies tumbled on worries about the credit crisis and economic slowdown.

The European Central Bank, meanwhile, indicated it might cut interest rates for the first time in five years.

The oil price fell on Friday, with London Brent crude dropping below $90 a barrel for the first time since Sept. 17 on mounting economic worries.

"Thursday's decline in the U.S. markets and the subsequent follow-through today in Asia underscore the need for this bill to pass," said Andrew Barrett, managing director and strategist with Citi Private Client Investment in Hong Kong.

"The bottom line is quite simple: the markets will rally on passage and sell off on any further delay," he said.

The crisis looms as the hottest issue in U.S. elections, now just over a month away. Both presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, voted for the package and warned of dire consequences if it fails the House.

In Thursday night's vice-presidential debate, Democratic nominee Joe Biden and Republican Sarah Palin both said the financial crisis reflected a failure of oversight but then sparred over responsibility for the mess.

"There was greed and there is corruption on Wall Street. And we need to stop that," said Palin, the governor of Alaska.

Sen. Biden of Delaware said: "If you need any more proof positive of how bad the economic theories have been, this excessive deregulation, the failure to oversee what was going on, letting Wall Street run wild, I don't think you needed any more evidence than what you see now."

Rallying Votes

Backers of the rescue plan, including U.S. Treasury Secretary Henry Paulson, called on members of the House of Representatives who voted down a similar measure on Monday to change their vote.

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At the center of the storm, credit markets remained under deep stress. With banks fearful of lending to each other, direct bank borrowing from the U.S. Federal Reserve shot to a record high, averaging a staggering $368 billion per day.

New economic data painted a bleak picture. U.S. factory orders tumbled in August and the number of workers seeking jobless benefits rose in the latest week to a seven-year high.

Even if the bailout passes Congress, skeptics question whether the measure can stop more housing-related dominoes from toppling in the United States.

The package, equivalent to some $2,300 per American, is intended to reinvigorate credit markets that have stopped trading as financial institutions, staggered by failed mortgages, focused on preserving capital.

Under the plan, the Treasury would buy illiquid assets held by financial institutions, in the hope of restoring confidence and thawing credit markets vital to the wider economy.

Copyright 2008 Reuters. Click for restrictions.