By Tony Munroe and Ralph Boulton
HONG KONG/LONDON (Reuters) - The Senate endorsed a revised $700 billion plan to tackle a financial crisis that has drawn warnings of approaching economic catastrophe, leaving the House of Representatives to decide its fate.
The House rocked global markets this week by rejecting an earlier version. President George W. Bush, speaking after Wednesday night's 74-25 Senate vote, called the bailout "essential to the financial security of every American".
But the crisis has spread well beyond U.S. shores and beyond the financial sector. Top automakers including General Motors Corp (GM) gathering in Paris warned of tough times amid concerns that slowing demand could force production cuts and job losses.
French President Nicolas Sarkozy's office said the president would host the leaders of Britain, Italy, Germany and the European Central Bank on Saturday to discuss a response . Sarkozy, however, denied reports a 300 billion euro plan akin to the U.S. bailout was under consideration.
The European Commission welcomed the Senate vote as heading in the right direction. "We certainly hope that other steps will follow," Commission President Jose Manuel Barroso said.
A collapse in the U.S. housing market which spread to major financial institutions has reverberated well beyond American shores, most recently hitting European banks, spurring the moves to formulate a similar support plan.
U.S. figures showing falling factory output and plunging car sales added to evidence the crisis is strengthening its grip on the economy as a whole.
Market participants warned that the rescue package is not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.
"Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize," said Masamichi Adachi, senior economist at JPMorgan in Tokyo.
"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown."
The bailout plan, equivalent to some $2,300 per American, is intended to reinvigorate credit markets and interbank lending that has frozen up while overleveraged financial institutions staggered under the weight of failed mortgages. It has stirred fierce criticism from those who see it as help for a Wall Street guilty of taking reckless risks in pursuit of short-term profit.
Under the deal, the Treasury would take on illiquid assets held by banks, in the hope of restoring confidence and unfreezing credit markets vital to the wider economy.
Asian stocks drifted lower despite the vote, on fears of recession. The FTSEurofirst 300 index of top European shares rose 1.5 percent in morning trade.
Interbank lending rates, a gauge of general confidence within the banking system, remained high, reflecting continued uncertainty despite the Senate vote and large injections of cash by central banks.
President Bush, his personal authority eroded by the approaching end of his term in office, welcomed Senate passage of the package and urged the House to quickly do the same when it votes, probably on Friday.
"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said in a written statement.
HOUSE PASSAGE SEEN MORE LIKELY
Senate leaders hope that sweetening the plan with a tax cut and extended federal protection for bank deposits can turn "no" voters in the House into supporters. On Monday, the House rejected the previous version of the plan by a 228-205 vote.
"It's still uncertain. I think it is likelier to pass than before," House Financial Services Committee Chairman Barney Frank said in an interview on CNN.
"The main change is reality. I think that it's not possible now to scoff at the predictions of doom if we don't do anything," the Massachusetts Democrat added.
Many Americans resent the idea that Wall Street is being "bailed out" at taxpayer expense, and have made their views clear in emails and calls to Washington, putting pressure in particular on vulnerable members of the House.
The crisis has become the biggest issue in forthcoming U.S. elections. Both presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, voted for the package. Obama, echoing Republican Bush's warnings, said the bailout was vital to 'prevent a crisis turning into a catastrophe'.
All 435 House seats will be contested in the election on November 4, as opposed to 35 seats up for grabs in the Senate.
Switzerland's UBS AG, which has written off more than any other European bank this year because of exposure to U.S. 'toxic' assets, offered some good news for markets, announcing it would make a small profit in the third quarter.
But Britain's Nationwide building society said house prices in August were 12.4 percent lower than a year earlier, their highest annual drop since records began in 1991. The country's biggest retail chain Marks and Spencer posted a 6 percent drop in second-quarter core sales and said it was cutting investment
.
Treasury Secretary Henry Paulson, whose original three-page proposal grew to hundreds of pages when Congress got involved, urged the House to act swiftly to ratify it.
Should the House uphold the bill, it would go to the White House for signature into law by President Bush.
"This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going," Paulson said.
Stocks in Tokyo dropped 1.9 percent on Thursday, while MSCI's share index for the rest of Asia lost 1.2 percent. Oil gained $1 a barrel..
"If the massive expansion of the Fed's balance sheet and other CB (central bank) liquidity injections cannot do the trick then coordinated global rate cuts becomes likely and necessary," Michael Hartnett, chief emerging markets equity strategist at Merrill Lynch, wrote in a note.
The tally for all the various rescue measures launched by U.S. authorities this year runs to about $1.8 trillion -- more than the total economic output of both Canada and Spain last year.
(Writing by Tony Munroe and Ralph Boulton; Editing by Alex Smith/Jean Yoon/Richard Hubbard)
