INSTANT VIEW: Senate passes $700 bln financial rescue

WASHINGTON (Reuters) - The U.S. Senate approved a $700 billion bailout of the financial industry on Wednesday that political and financial leaders called crucial to averting economic catastrophe.

The bill is aimed at reinvigorating worldwide credit markets and interbank lending that had frozen up while overleveraged financial institutions staggered under the weight of failed mortgages.

The bill next goes to the House of Representatives, where a vote is likely on Friday. The following are market comments on the move.

COMMENTS:

GERARD RIGBY, FUEL FIRST CONSULTING, SYDNEY

"This will support the U.S. economy and help to maintain demand for oil products. Therefore we should not see a collapse on oil demand that traders are fearing.

"Demand will be lower compared with a year ago but the bill will help to put a floor to it. Traders, fearful of inflation and equities, will see commodities and oil as a safe haven.

"Funds will flow into these markets and I don't see oil prices falling to below $90 a barrel."

HIROAKI KURAMOCHI, CHIEF EQUITY MARKETING OFFICER, TOKAI TOKYO SECURITIES

"Investors increasingly view that it's still unclear if today's passage of the bill will lead to the fundamental solution of the problems.

"We still need to see the vote result in the U.S. House, on top of the jobs data and the impact (of the bailout) on the real economy."

THOMAS CHOI, HEAD OF EQUITIES, UBS HANA ASSET MANAGEMENT SEOUL

"While the news is certainly positive, it is not going to solve lots of problems we already have in markets and economies today. It's quite obvious at this point that the real economy is in for a serious downturn, with the latest set of economy data pointing to severe drying-out in source of funds, or money, for average consumers, as the employment situation worsens. The wealth effect has been literally erased by current real estate market downturn.

"It's mountains after mountains of troubles, and the economy will probably remain in slump for at least another year.

MASAMICHI ADACHI, SENIOR ECONOMIST, JPMORGAN SECURITIES, JAPAN

"This is clearly positive news but there's still the lower house vote, so there is little room for optimism. Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize.

"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown. They might trigger a short rally in markets but won't offer a fundamental solution."

JEON SEUNG-JI, CURRENCY ANALYST, SAMSUNG FUTURES, SEOUL

"The U.S. Senate's approval of the rescue plan may weaken appetite for safer assets in the short-term. But I am not so sure if the bailout will ease worries about the financial crunch in the longer term or not. We still need to see if the House of Representatives will pass the bill, although they are expected to follow the Senate.

"The Korean won is unlikely to find big support from the bailout as the local swap market is expected to continue to suffer from dollar funding shortage. We will see stronger end-year dollar demand."

MARK PERVAN, SENIOR COMMODITIES ANALYST, ANZ, MELBOURNE

"This hasn't really changed the picture. The House is the key hurdle. This should be a mildly positive fillip for the market, but the bigger barrier is to come."

"Even if it passes the House, it doesn't really change the longer-term term bearish outlook for commodities. If fails again, we could see a lot more pain in these markets, other than gold, which should hold its own and crack on above $900."

KENRO KAWANO, SENIOR INTEREST-RATE STRATEGIST, CREDIT SUISSE, TOKYO

"The market focus has shifted to the details of the bailout plan and given expectations the scheme will likely be watered down when it is eventually passed, the markets are unlikely to react sharply anymore. It's positive news but it won't lead to a sharp rally in stocks or a plunge in bonds.

"It is still unclear at what price assets will be bought, and if losses are realized and hit capital, it's not clear how damaged capital will be beefed up.

"Until these questions are answered, credit worries will persist and weigh further on the economy."

SHAMUBEEL EAQUB, ECONOMIST, GOLDMAN SACHS JBWERE, NEW ZEALAND

"It removes a lot of the risks for the economy. Increasingly in the last week people were concerned this could transform into a protracted financial and economic recession globally."

"The passage of this bill, which will shore up confidence in financial markets, will be extremely positive in terms of those risks, but at the same time its important to realize there is still that macro underlying theme of weakness."

"So while this is positive for removing those risks, we don't think its time to celebrate just yet."

YASUTOSHI NAGAI, CHIEF ECONOMIST, DAIWA SECURITIES SMBC, TOKYO

"If it had not passed the impact would have been big but the outcome was as expected. A perception that the House of Representatives is also likely to approve the plan has been growing and this result may back up that view.

"But my personal opinion is that there was a pretty significant amount of opposing votes in the Senate."

"I think this vote tally still leaves some concern. It is hard to tell what will happen on Friday with the House of Representatives."

ADAM CARR, SENIOR ECONOMIST, ICAP, SYDNEY

"It's a good signal but at the end of the day, the House is the problem. We are not hearing positive signals from a lot of the House Republicans on that issue and I still don't think it is a fait accompli."

DARIUSZ KOWALCZYK, CHIEF INVESTMENT STRATEGIST, CFC SEYMOUR, HONG KONG

"This was largely expected by the markets. Investors will probably start to focus on longer-term implications. The plan will improve the financial position of the banking system but will not stop a recession. We expect a short-term bounce for stocks and commodities but as global recession takes hold, both will see new lows. Treasuries and the dollar should fall on rising fiscal deficit."

SHANE OLIVER, HEAD OF INVESTMENT STRATEGY, AMP CAPITAL INVESTORS, SYDNEY

"There will be some settling in markets, but I think markets will remain skeptical until it passes in the House. I believe it is more likely to be successful (in the House), they only need 12 or 13 votes to get them through and the mood of public opinion in the U.S. has swung from opposition to the package to now somewhat more mixed. I think it needs to pass (the House) by the opening of markets on Monday - Friday would be better."

MITSUSHIGE AKINO, CHIEF FUND MANAGER, ICHIYOSHI INVESTMENT MANAGEMENT, TOKYO

"The Senate's passing of the bailout plan was widely expected, therefore it will have little impact on share prices. Market players also expect the House to approve the bill on October 3, and if that happens, it should help calm investor jitters a bit.

"But even if the bill becomes law, there would be still doubts over the bailout package's effectiveness. It's unlikely to boost U.S. stocks much and won't be a buying incentive for Japanese shares, either."

ERIC BETTS, STRATEGIST, NOMURA AUSTRALIA, SYDNEY

"The bailout is a big issue, you have this systemic risk problem which the bailout will hopefully deal with. But you still have macro economic picture which is not really good. The problems always been that the systemic risk is flowing through to the real economy in terms of credit availability and so on. Without fixing the first, the second one will get even worse. So, even if they fixed the first, the second one will be pretty bad.

I think, people have got their fingers brunt last time. So, its not a given until the ink is dry and the votes have been counted."

PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY CITY, NJ

"It was expected to pass and that's very good news for the market. But it was managed by real expertise by both the Republican and Democratic leaderships - it was a complete contrast to what happened earlier in the week.

"It was significantly less partisan- - this is all about confidence. It was handled by the Senate in way to show the House of Representatives how it should be done.

"It will instill confidence and underscores that a resolution to the crisis can be brought about by the end of the week. The fact that there was a virtual insurrection in the House ended up giving us a better finished product

"This is going to address not just the issue of unfreezing credit, this should theoretically give institutions the backdrop to trust another and allow the free flow of capital between parties."

U.S. SENATOR CHRIS DODD, DEMOCRAT OF CONNECTICUT

"There's not going to be a blossoming tomorrow after noon or Friday with the American economy. We have many many months difficult months ahead to get this right, but none of that could happen without the decision today."

KIT WEI ZHENG, AN ECONOMIST AT CITIGROUP IN SINGAPORE

"Even if there's a bailout package, all it does is prevent things from going worse. We are definitely less optimistic over the next three months.

People are likely to start shifting their focus to Europe, which is going to experience financial stresses and a housing downturn at the same time.

Market expectations for Asian growth was a bit too strong at the start of the year. Asian currencies will weaken against the dollar.

The weakness in the rest of the world has not been priced in and currencies will move to reflect that in the coming months. It will be a story of the rest of the world weakening rather than a rebound in the U.S. dollar."

RICHARD STEINBERG, PRESIDENT NAD CHIEF INVESTMENT OFFICER, STEINBERG GLOBAL ASSET MANAGEMENT IN BOCA RATON, FL

"It sends a strong message that Washington, D.C., has to wake up smell and coffee -- it's time for the House to realize this credit freeze is as much of a Main Street issue as a Wall Street issue.

"If it doesn't pass, it'll be one of the great tragedies of U.S. history. It will stabilize things for now - it gives the markets a message that will free up the credit freeze that potentially could have had a crippling effect US. economy and world economy"

TOM TANG, VICE PRESIDENT, MASTERLINK ADVISORY IN TAIPEI

"The passage of the billout bill should send some relief to the markets globally. If the selling on U.S. stocks can stop, that's good news for other markets, including Taiwan.

"But that will be temporary. Since the U.S. economy is not in good shape and we don't think it will recover any time soon, the downward pressure on the global markets still exists in the medium and longer term.

Chances are very high that a lot of companies in Taiwan and the United States will report poor quarterly earnings results later this month."

MARK PERVAN, SENIOR COMMODITIES ANALYST AT ANZ IN MELBOURNE

"This hasn't really changed the picture. The House is the key hurdle. This should be a mildly positive fillip for the market, but the bigger barrier is to come."

"Even if it passes the House, it doesn't really change the longer-term term bearish outlook for commodities. If it fails again, we could see a lot more pain in these markets, other than gold, which should hold its own and crack on above $900."

JONATHAN KORNAFEL, ASIA DIRECTOR OF HUDSON CAPITAL ENERGY IN SINGAPORE

"I am not surprised. Once the bill is finally approved, I would expect crude oil to sell off. In the short term, I would look for us to head for the low $90s.

"We may move higher today or tomorrow, but in the fourth quarter of 2008 and first quarter of 2009, I would expect crude to trend lower.

"The upside moves will eventually continue, as supply-side issues have yet to be resolved, but demand destruction will continue as it has not been proven that the bail-out will actually work."

CALLUM HENDERSON, CHIEF CURRENCY STRATEGIST AT STANDARD CHARTERED BANK, SINGAPORE:

"Clearly this is positive news for global markets and should help at the margin to reduce cross-market strains.

"It is vitally important that a floor be put under financial market confidence. After that, policymakers can get on with the second task of dealing the real economic pain that is yet to come.

"But the first is crucial. If it is not passed, there is a real risk of an even bigger meltdown in financial markets.

"However, assuming that the House does pass it Friday we should see a rebound in global asset markets and some retracement in the dollar.

"The only question then is how long that lasts - as investors will refocus away from banking system strains and back to poor economic fundamentals."

CIMB RESEARCH SENIOR ECONOMIST SONG SENG WUN

"The Senate approval was widely expected so the markets have already started reacting positively. The lower house's vote will come next, and there should be a realization by now that the bill has to be passed.

"There should be an initial relief rally in the stock market. But we still have to wait for the reaction in the money markets to see whether rates will ease off as there is still a lot of concerns about the macro environment."

EDWARD MEIR, ANALYST AT MF GLOBAL

"This will create a relief rally. We should see a run up in equities and commodity markets. This Bill has been loaded up with so many goodies that it should also pass the House."

DARREN HEATHCOTE, ANALYST AT INVESTEC AUSTRALIA IN SYDNEY

"You would think that gold would sell off because the risk aversion will be reduced and investors would be looking to exit gold that they bought for that particular reason as sort of safe haven hedge.

"You might expect there will be some selling. It really depends, I guess, how much the dollar has moved at the same time."