US House passes housing bill; Bush lifts veto threat

*House passes housing bill; Senate vote still to come

*Bush drops veto threat, will sign housing bill

*Bill would offer gov't safety net for mortgage markets

By Kevin Drawbaugh and Tabassum Zakaria

WASHINGTON (Reuters) - The U.S. House of Representatives passed a massive housing rescue bill on Wednesday while the White House dropped a threat to veto it, paving the way for measures aimed at shoring up the worst U.S. housing market since the Great Depression.

Removal of the presidential veto threat spurred investors to snap up shares and bonds of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), which would receive an emergency government lifeline under the bill.

The measure, approved on a 272-152 vote, now moves to the U.S. Senate, where a vote may take place later this week or early next week.

The bill had been in the works for months, but took on greater urgency since concerns about Fannie and Freddie's finances mounted in mid-June

Ten days ago, the U.S. Treasury pledged an unspecified credit line for the companies and said it would buy their stock, if needed, to bolster investor confidence. Those emergency measures required congressional approval.

The two companies, which own or guarantee almost half of the $12 trillion in U.S. mortgage debt outstanding, have recorded heavy losses in the past year amid rising defaults.

If they were unable to keep financing mortgages, analysts say the already weak housing market could grind to a halt, tipping the U.S. economy into a deep recession.

NO TIME TO WAIT

A White House spokeswoman earlier said President George W. Bush would sign the bill because it is needed urgently to address the housing and credit crisis, despite concerns about a provision that would provide grants to communities to buy and repair foreclosed homes.

"We do not believe we have time for a prolonged veto fight," spokeswoman Dana Perino said.

Lawmakers have moved with unusual speed since the Treasury proposed the financial backstop for the two companies.

Senate Majority Leader Harry Reid said he wanted to send the measure to the president on Wednesday, but cautioned Republican lawmakers could stall it, making it unclear whether Senate approval would come this week.