By Eddie Evans
NEW YORK (Reuters) - The House of Representatives started to vote on a $700 billion bailout package for U.S. banks, under pressure from all sides as the effort to head off a spreading financial crisis hung in the balance.
Wells Fargo & Co stepped in to buy Wachovia Corp, a bank badly hobbled by the credit crisis, providing a rare bit of positive news for the financial sector and sending markets higher.
In new signs of spreading crisis, California said it was running out of money, France said the world stood on the "edge of the abyss" and European leaders were divided over their own response to the global crisis.
As the House began debate on the bailout on Friday, House leaders were still working the phones to get support.
"I'm optimistic about today. We're not going to take anything for granted," said House Republican leader John Boehner said. "We're going to continue to talk to our members, but it's time to act."
The House shocked world markets on Monday by rejecting a previous draft. With elections on November 4, lawmakers are wary of voter backlash in asking taxpayers to pay for Wall Street's mistakes.
The bill would allow the Treasury to buy toxic debt from U.S. banks, which many economists said is needed to head off the worst financial crisis since the Great Depression.
U.S. stocks rose on hopes for the bailout plan and the deal to buy Wachovia.
Wells Fargo, one of the strongest U.S. banks, said it didn't need the government help that Citigroup Inc required in an earlier effort to rescue Wachovia.
The dollar continued to rally against the euro and European stocks rallied about 3 percent.
Earlier on Friday, the United States reported its biggest monthly job loss in 5 1/2 years, more evidence of an approaching recession. Data showed the U.S. services sector holding up.
"The data has been horrible all week long. It absolutely does put pressure on them to get this rescue act passed," said Fred Dickson, market strategist at D.A. Davidson and Co in Lake Oswego, Oregon. "It's a bill with risks, but it's a plan and the market needs a plan."
In California, Gov. Arnold Schwarzenegger warned the U.S. Treasury it may need short-term federal loans because it can't raise money in frozen credit markets.
In Europe, European Central Bank President Jean-Claude Trichet said action on the bailout plan was of paramount importance.
"(U.S. Treasury) Secretary (Henry) Paulson's plan obviously must be passed," he told Europe 1 Radio. "It must be. It is necessary."
On Thursday, House Speaker Nancy Pelosi had said the bailout package would not be brought to the floor without the votes secured to pass it.
Still, some Republicans who opposed it on Monday have said they were not swayed by changes made by the Senate, which approved the bill on Wednesday, and some Democrats said they were put off by those changes.
A collapse in the U.S. housing market and resulting bad mortgages have shattered confidence in the financial sector, with banks across the United States and Europe needing support from governments or outside investors this week.
Interbank lending and credit to businesses and private individuals has all but seized up. Central banks have injected billions of dollars to maintain some flow of funds.
French Prime Minister Francois Fillon, whose country is hosting an emergency summit with Italian, British and German leaders on Saturday, said only collective action could solve the financial crisis. He said he would not rule out any solution to stop any bank failing.
"The world is on the edge of the abyss because of an irresponsible system," Fillon said, alluding to widespread anger over past lax regulation of financial markets and excessive lending.
Fillon said President Nicolas Sarkozy would propose at the emergency meeting measures to unfreeze credit and coordinate economic and monetary strategies.
In Britain, Prime Minister Gordon Brown shook up his cabinet and authorities took three separate steps to try to shore up the financial system.
Bad news mounted in the European financial sector.
In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime-related holdings, said it would cut 2,000 investment banking jobs -- on top of the 4,100 positions cut in the past year.
Worries grew that even if Washington agrees on the package, it will not be enough to resolve deeper-rooted weakness. New data showed that a U.S. recession is nearing and Europe's economy is worsening.
Divisions have emerged within Europe over the past week, with Ireland offering guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks, and Greece promising to safeguard savers' cash.
EU partners said Ireland's move could break competition rules and threatened the unity necessary to ensure an ordered approach to turmoil ahead.
(Additional reporting by Reuters reporters in Paris, Washington, Singapore, Tokyo and Zurich; Editing by Tom Hals)
