TOPWRAP 15-U.S. Senate approves $700 bln financial bailout

* Vote passes 74 to 25

* Dollar climbs to one-year peak

* France, Germany clash over European rescue plan (Updates with Senate vote count, reaction, Asian markets)

By Daniel Trotta and Richard Cowan

NEW YORK/WASHINGTON, Oct 1 (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.

Amid warnings that failure to act could plunge the country into a depression, the Senate voted 74 to 25 in favor, sending the measure to the House of Representatives, probably for a vote on Friday.

Attention will now shift to the House, which had rejected a similar measure on Monday, sending global markets into a tailspin. In response, congressional leaders added two sweeteners to the bill -- a tax cut and extended federal protection for bank deposits -- that could turn "no" voters into supporters. [ID:nN01519890]

"This bill has been loaded up with so many goodies that it should also pass the House," said Edward Meir, an analyst at MF Global.

Senate Majority Leader Harry Reid said he expects the House will approve it on Friday.

Treasury Secretary Henry Paulson, whose original three-page proposal grew to hundreds of pages when Congress got involved, praised the Senate vote and urged the House to act swiftly to ratify it. [ID:nWEQ000222] Should the House uphold the bill, it would go to the White House for signature into law by President George W. Bush.

"This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going," Paulson said.

Central bankers and pensioners worldwide were counting on the rescue plan to empower the U.S. Treasury to buy distressed assets from financial firms, clean up their balance sheets and jump-start lending.

The vote came amid early trade in Asian markets, and the dollar gave up gains and fell while safe-haven Treasuries rose, with traders saying the markets were nervous about what would happen next in the House. [ID:nTKW003039] Japanese stocks extended losses. [ID:nT347464]

"There should be an initial relief rally in the stock market," said Song Seng Wun, a senior economist at CIMB Research. "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 concern about the macro environment."

The credit crisis also reverberated among European banks [ID:nSP194127] while recessionary signals mounted in the United States.

U.S. factory activity shrank in September to its lowest since the 2001 recession [ID:nN01504188] and major automakers reported plunging U.S. sales for September, led by a 34 percent slide at Ford Motor Co. (F.N) [ID:nN01506733]

In Europe, France and Germany clashed over the idea of a U.S.-style financial rescue fund for Europe amid further signs of contagion from the global credit crisis. [ID:nL151927] [ID:nL136020] [ID:nLU214902]

Italy's UniCredit (CRDI.MI) became the latest bank under scrutiny after backing away from its 2008 earnings targets. [ID:nLU214902]

The U.S. vote capped another whirlwind day in the markets [ID:nN01507881] in which shares of bellwether U.S. conglomerate General Electric Co (GE.N) plunged as much as 9 percent on concerns about future earnings until super-investor Warren Buffett took a $3 billion stake. [ID:nN01517825]