UPDATE 3-Bush seeks to contain fallout, salvage legacy

Tue Sep 30, 2008 1:50pm EDT

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(Adds Bush staying in Washington for now)

By Matt Spetalnick

WASHINGTON, Sept 30 (Reuters) - U.S. President George W. Bush vowed on Tuesday to revive a $700 billion financial bailout plan rejected by lawmakers, as he scrambled to contain the fallout in world markets and save his own troubled legacy.

Looking grim-faced, Bush stood before the cameras at the White House and insisted the rescue package was not dead a day after the U.S. House of Representatives handed him the worst legislative defeat of his nearly eight-year tenure.

With less than four months left in office, his approval ratings low and his influence dwindling, Bush was unable even to keep his own Republican party in line when the House voted the bill down on Monday, sending stock prices plummeting. More than 100 Republicans defied him and voted against the measure.

"I assure our citizens and citizens around the world that this is not the end of the legislative process," Bush said, promising redoubled efforts to save a plan aimed at curbing the worst U.S. financial crisis since the Great Depression.

He warned that decisive action was needed or else the economic damage could be "painful and lasting."

"Congress must act," Bush declared even as shockwaves from U.S. financial upheaval continued spreading worldwide.

The White House later released a statement saying Bush had spoken to the two presidential candidates, Democrat Barack Obama and Republican John McCain, and both had agreed "this critical issue needs to be addressed."

Bush will stay put in Washington "for as long as it takes to get this done," said White House spokesman Tony Fratto. He said Bush would not travel on Thursday -- despite news reports he was due in Nevada to address a Republican governors meeting -- and his plans for Friday were subject to change as well.

IS BUSH'S APPEAL ENOUGH?

But it was unclear whether Bush's latest appeal, just days after Bush addressed the nation on the crisis, would be enough from a president increasingly perceived as a lame duck.

Congressional leaders had agreed before Monday's vote on a bipartisan compromise that would have allowed the Treasury Department to buy up toxic assets from struggling banks.

Despite Bush's almost daily public pleas over the past week, a joint meeting at the White House with McCain and Obama and last-minute phone calls to dozens of lawmakers, the bill still went down to defeat in the Democratic-controlled House.

It was stark evidence of Bush's declining clout on Capitol Hill, where many lawmakers on both sides of the aisle, especially those facing re-election, were spooked by polls showing strong public opposition to the bailout.

This crisis is the last thing Bush needed in the twilight of his presidency when his Republican party is battling to keep the White House in the Nov. 4 election.

The U.S. economy has been on the ropes for months, bordering on recession, and despite security gains in Iraq, the war remains deeply unpopular with the American public.

Bush's approval ratings of around 30 percent are among the worst of any modern U.S. president near the end of his term. Surging energy prices and increasing home foreclosures have also helped tarnish the public perception of his tenure.

Bush, who had long insisted the country's economic fundamentals were strong, sounded a note of alarm on Tuesday as he tried to use what has been called the "megaphone" of the presidency to break the legislative deadlock.

"We're at a critical moment for our economy and we need legislation that decisively addresses the troubled assets now clogging the financial system," he said.

He said he understood the objections of some members of Congress to the financial rescue package, but insisted, "The reality is that we are in an urgent situation, and the consequences will grow worse each day if we do not act." (Additional reporting by Deborah Charles and Tabassum Zakaria; Editing by Andrea Ricci and Cynthia Osterman)

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