U.S. reaches outline for bailout deal

The program also calls for "meaningful judicial review of the Treasury secretary's actions," the statement said.

Finally, the government could use its power as the owner of mortgages and mortgage-backed securities to help more struggling homeowners modify the terms of their home loans.

FEAR OF CONTAGION

Turbulent financial markets made the negotiations over the bailout more urgent, as big banks in recent weeks teetered, collapsed and refused to lend money to each other.

Regulators seized Washington Mutual Inc on Thursday in the biggest bank failure in U.S. history, selling its assets to JPMorgan Chase & Co. Washington Mutual filed for bankruptcy on Saturday with $8 billion in debt.

Meanwhile, published reports said Wachovia Corp, the sixth-largest U.S. bank, began merger talks with potential partners after a 27 percent drop in its shares on Friday.

Investors worried about a contagion effect as the crisis showed signs of spilling into Europe, where Belgian-Dutch financial group Fortis NV fired its interim chief executive after liquidity concerns pushed its shares to a 14-year low.

In London, regulators were in talks on the future of troubled lender Bradford & Bingley, raising the prospect that a second British bank could be nationalized.

The bailout deal capped a tumultuous week as news out of Washington made a deal look imminent at one moment, and then out of reach the next.

Lawmakers announced a deal in principle on Thursday, but conservative Republicans in the House balked, saying taxpayers should not be put on the hook for a private market failure.

Negotiations were thrown into further disarray as Republican presidential candidate John McCain suspended his campaign and rushed back to Washington, leading Democrats to charge that he was playing politics with the crisis.

Both McCain and Democratic nominee Barack Obama were in touch with congressional negotiators as talks hurtled toward a conclusion late on Saturday.

In the end, House Republicans won support for a provision that would create a privately funded insurance program for mortgage-backed securities, congressional aides said.

Democrats jettisoned proposals that would have put money into a trust fund for affordable housing and would have allowed judges to alter the terms of mortgages for bankrupt borrowers, according to aides.

(Additional reporting by Richard Cowan, Deborah Charles, Dan Trotta and David Lawder; Writing by Kevin Krolicki)