By Richard Cowan and Tabassum Zakaria
WASHINGTON (Reuters) - Congress looked close to reaching a deal to approve a $700 billion plan to bail out the U.S. financial system and President George W. Bush called an emergency meeting for Thursday to hammer out details.
The move nearer a deal will likely calm U.S. markets, which were in turmoil on Wednesday as negotiations dragged on. Investors stampeded into cash and safe-haven assets, briefly sending short-term interest rates below zero. Experts said banks were hoarding cash, fearful that if they loaned money to other banks they might not get repaid.
But with a deal near, U.S. stock futures were up about 0.5 percent after earlier being negative, suggesting a firmer open for Wall Street on Thursday. Asian stock markets also retraced earlier losses.
Bush warned of a looming economic disaster if Congress failed to act swiftly to fund the $700 billion bailout that would be larger than the total cost of the Iraq war.
Bush offered few details about the makeup of the emerging deal for a bailout.
U.S. congressional Democrats and Republicans plan to meet on Thursday to draft a final bipartisan, a Democratic source told Reuters on Wednesday night.
"Not too many unresolved issues remain," the source said.
Earlier on Wednesday, Senate Banking Committee Chairman Christopher Dodd expressed optimism a deal was nearing.
"We're not there yet," Dodd told reporters, adding there was a "good possibility we'll get there in a day or so."
Bush said he had called an emergency meeting with Democratic presidential candidate U.S. Sen. Barack Obama, his Republican rival U.S. Sen. John McCain and members of Congress to broker a deal. Obama accepted.
Moments after Bush spoke, powerful Democrat U.S. Rep. Barney Frank said it was "clear" a bailout bill will pass.
Bush used his televised speech to tell Americans there was little choice but to undertake the massive bailout.
"Under normal circumstances, I would have followed this course. But these are not normal circumstances," Bush said.
"The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America's financial system are at risk of shutting down."
If left unchecked, he said the problems in capital markets would reach far beyond big business and Wall Street but guarantee a long and painful recession and make it harder for regular folk to get loans to buy cars or send kids to college.
Wrangling over the bailout overshadowed Berkshire Hathaway Inc's
"I am to some effect betting on the fact that the government will do the rational thing and act properly," Berkshire's Warren Buffett, one of the world's richest men and preeminent investors, told CNBC.
Earlier, McCain said he will break off from his campaign to return to Washington to help broker a deal, saying he feared legislation could not pass in its current form. The Arizona senator said he wanted to cancel Friday's presidential debate.
Obama indirectly accused McCain of playing politics and said the first of a series of planned presidential debates should go ahead.
"What is important is that we don't suddenly infuse Capitol Hill with presidential politics," Obama said.
"What I'm planning to do now is debate on Friday," the Illinois senator said from Florida. "It's my belief that this is exactly the time when the American people need to hear from the person who in approximately 40 days will be responsible for dealing with this mess.
Many lawmakers have demanded changes to the bailout plan.
The changes include more protections for taxpayers and restrictions on the pay of executive at companies that unload their bad assets.
(Writing by Mark Egan)
(Reporting by James Vicini, Mark Felsenthal, Gertrude Chavez-Dreyfuss, Dan Burns, Richard Cowan, Richard Leong, Al Yoon, Jonathan Stempel and Steven C. Johnson, Editing by John Wallace and Jeffrey Benkoe)
