UPDATE 1-US Senate passes funding bill with automaker loans

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By Donna Smith

WASHINGTON, Sept 27 (Reuters) - The U.S. Congress on Saturday agreed to finance a $25 billion loan package to help troubled automakers as part of a mammoth spending bill that will keep the government running until early March 2009.

The U.S. Senate approved the more than $630 billion spending bill 78-12. The bill was needed to finance defense, education, farm, health, foreign aid and other government programs after the current fiscal year expires on Sept. 30.

The U.S. House of Representatives passed the legislation earlier this week and it now heads to the White House for President George W. Bush's signature.

Congress passed the bill as lawmakers continued negotiations on a $700 billion bailout for Wall Street that lawmakers say is needed to free up credit markets and avert a steep economic downturn.

The spending legislation allows a ban on offshore drilling to expire on Sept. 30. Democrats had hope to extend the ban, but did not have the votes in the face of stiff opposition from Republicans.

The bill sets aside $7.5 billion in taxpayer funds needed to guarantee $25 billion in low-interest loans to help struggling General Motors Corp.GM.N, Ford Motor Co.(F.N) and Chrysler LLC produce more fuel-efficient cars and trucks.

Congress rushed to pass the massive spending bill before the new fiscal year begins Oct. 1 because lawmakers failed to approve any of the 12 spending bills Congress needs to act on every year to fund the government operating.

SENSITIVE AREAS

The bill includes $23 billion in emergency aid to states hit by hurricanes and other recent natural disasters.

It also provides full-year funding through Sept. 30, 2009, for three large, politically sensitive areas: defense, domestic security programs and expanded veterans' benefits.

But the $488 billion provided for the Pentagon is less than the $492 billion sought by Bush. It includes less money for outside contractors and more to supervise them.

The bill does not include new money for the ongoing wars in Iraq and Afghanistan. Congress would have to confront that issue when existing funds for those wars run out in mid-2009.

Congress and the new president who takes office in January also will have to pass legislation to run the government from March 6, 2009, through Sept. 30. Those will pay for government programs like health care, law enforcement and foreign aid.

Democrats, who control Congress, have spent the past year battling the Bush administration over about $14 billion in proposed increases for education, science research and other domestic spending.

The bill increases money for programs to help low-income people pay their heating bills and boosts funding for domestic food aid. It also extends funding for student loans.

Other measures sought by Democrats to help workers cope with a slumping economy, such as extended unemployment benefits, were blocked in the Senate on Friday. (Editing by Xavier Briand)