Senate endorses bailout, uncertainty remains

By Tony Munroe and Ralph Boulton

HONG KONG/LONDON (Reuters) - The U.S. Senate endorsed a revised $700 billion plan to tackle a financial crisis that has shaken world markets and drawn warnings of approaching economic catastrophe.

The plan now faces a final hurdle in the House of Representatives, which rocked global markets this week by rejecting an earlier version. President George W. Bush, speaking after Wednesday night's 74-25 Senate vote, called the bailout "essential to the financial security of every American".

But the crisis, beginning with a collapse in the U.S. housing market and spreading to major financial institutions, has reverberated beyond American shores, hitting European banks and spurring moves there to formulate a similar support plan.

U.S. figures showing plunging U.S. auto sales, led by a 34 percent slide at Ford Motor Co, added to evidence the crisis was spreading now to the "real economy", threatening industry, smaller businesses and jobs.

The bailout plan, equivalent to some $2,300 per American, is intended to reinvigorate worldwide credit markets and interbank lending that had frozen up while overleveraged financial institutions staggered under the weight of failed mortgages.

It involves the Treasury taking "toxic" or bad loans off the hands of institutions.

But market participants warned that the rescue package is not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.

"Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize," said Masamichi Adachi, senior economist at JPMorgan in Tokyo.

"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown."

Stocks in Asia were lower on Thursday on recession fears, and European stocks opened flat. Treasuries rose and the dollar gave up early gains.

The House of Representatives will probably vote on Friday.

President Bush praised Senate passage of the package and urged the House to quickly do the same.

"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said in a written statement.

HOUSE PASSAGE SEEN MORE LIKELY

Leaders in the U.S. House of Representatives expressed cautious optimism that the legislation would be approved.