UPDATE 1-Bush says U.S. economy will be fine in long run

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CINCINNATI, Oct 6 (Reuters) - U.S. President George W. Bush said on Monday it would take time for the $700 billion rescue plan to have an effect on the U.S. financial system but that in the long run the American economy will be "just fine".

The President's Working Group on Financial Markets, a committee of top financial regulators who advise Bush, said in a statement that market conditions were extremely strained.

"I believe in the long run this economy is going to be just fine," Bush said at the beginning of a speech on judicial nominees. "It's a resilient economy, it's a productive economy with good workers.

"This is a reminder that we have been through tough times before and we're going to come through this just fine," he said.

His remarks came as the Dow Jones industrial average had fallen some 700 points amid a selloff in global markets. It has since pared those losses to be down about 550 points.

Bush signed legislation last week to permit the Treasury Department to buy up to $700 billion in illiquid assets from financial institutions in a bid to free up the frozen credit markets.

"I signed the bill on Friday. It's going to take time for the Treasury Department to put a plan in place that won't waste your money and that will achieve the objectives," Bush said. (Reporting by Tabassum Zakaria; Writing by Jeremy Pelofsky; Editing by Chizu Nomiyama)