PRESS DIGEST - New York Times business news - Oct 3

Oct 3 (Reuters) - The following were the top stories in the New York Times business pages on Friday. Reuters has not verified these stories and does not vouch for their accuracy.

* In 2004, the Securities and Exchange Commission allowed investment banks to take on more debt, and over the years, the firms took advantage of the rules.

* Stocks dropped sharply on Thursday as signs of the economy's worsening health and a continued choking of credit unnerved investors ahead of a crucial vote in Washington on a financial rescue plan.

* House Republican leaders struggled on Thursday to persuade some of their members to reverse course and support the $700 billion economic bailout package, but both parties said that they were guardedly optimistic about winning final passage of the measure in a vote expected early Friday afternoon.

* Using derivatives called credit-default swaps, traders are making a profit by betting against the finances of the State of New Jersey and other municipalities.

* Even if Congress approves President Bush's $700 billion rescue plan for Wall Street, top officials at the Federal Reserve believe the economy will slow down more than they had expected as recently as July. As a result, Federal Reserve officials are considering yet another reduction in the central bank's benchmark interest rate.

* The European Central Bank on Thursday abandoned its long-held position that inflation is the main threat to the Continent's economy and hinted that an interest rate cut could come as early as November.

* Merrill Lynch & Co's MER.N chairman and chief executive, John Thain, will remain at Bank of America Corp (BAC.N) after the merger of the two financial giants, Bank of America said Thursday.

* General Electric Co (GE.N) raised $12.2 billion by selling 547.8 million shares for 9.2 percent less than Wednesday's closing price, giving it more cash to finance operations.

* UBS (UBSN.VX), the giant Swiss bank that has been hit severely by the mortgage crisis, said Thursday that it would post a "small profit" during the third quarter, lifting its shares.

* Microsoft Corp (MSFT.O) said Thursday that it would set up research centers in Britain, France and Germany to improve its Internet search technology, describing the move as a vote of confidence in the European economy and in the company's ability to close the gap with Google Inc (GOOG.O).

* Orders to American factories plunged by the largest amount in nearly two years in August as credit strains began to hit manufacturing with full force.

* Honda Motor Co Ltd (7267.T) issued its challenge to the Toyota Prius on Thursday, introducing the Insight hybrid at the Paris Motor Show.

* In a deal that threatens WebMD Health Corp's (WBMD.O) dominance in the health care space, Revolution Health Network plans to announce on Friday that it has merged with Waterfront Media, a publisher that owns several health Web sites.