Bailout pressure mounts, roils world markets

By Jason Szep

NEW YORK (Reuters) - Pressure mounted on U.S. lawmakers to agree on a $700 billion financial rescue plan after the collapse of talks in acrimony and the biggest bank closure in U.S. history roiled global markets.

President George W. Bush acknowledged that there were disagreements but expressed optimism that Congress and the White House would come together on the proposal to rescue the U.S. financial system.

But as negotiations deteriorated into clashes between Republicans and Democrats in Washington, and as Treasury Secretary Henry Paulson met with lawmakers, turmoil in global financial markets deepened.

U.S. regulators seized bank Washington Mutual Inc Thursday, the biggest bank failure in the nation's history, and sold its assets to JPMorgan Chase & Co (JPM.N). In Europe, Belgian-Dutch financial group Fortis NV (FOR.BR)(FOR.AS) denied it had a liquidity problem after its shares tumbled more than 20 percent to a 14-year low.

Banks worldwide hoarded cash and showed a growing reluctance to lend, driving rates that institutions charge to each other on loans to a record high in London.

Wachovia Corp WB.N, the sixth-largest U.S. bank, saw its stock price tumble 20 percent, while National City Corp NCC.N, a Midwest regional bank, skidded 22 percent. America's banking industry confronts a rising tide of home foreclosures and loan defaults that has spawned the worst financial crisis since the Great Depression.

"What you're going to see is the strong stronger, and the weak are going to die off," said William Smith, president of Smith Asset Management in New York.

Global money markets dried up, forcing increased injections of cash from central banks. And with no relief in sight, investors flocked to the safety of cash and U.S. government securities.

"The consequences of this turmoil on real economic performance entail clear downside risk," St. Louis Federal Reserve President James Bullard said in remarks prepared for delivery to a conference in Tennessee.

Adding to the anxiety, new data showed U.S. economic growth was weaker than previously thought in the second quarter, and a survey showed U.S. consumer confidence began to nosedive in September.

Citing the crisis, Europe's biggest bank, HSBC Holdings Plc (HSBA.L), said it was cutting 1,100 jobs, adding to more than 80,000 job losses across the banking landscape in the past 18 months.

U.S. stocks declined, following losses in Asia and Europe.

"The markets are just caught like a deer in the headlights, watching Washington, trying to figure out what the next step is," said Boris Schlossberg, director of currency research at GFT Forex in New York.

The crisis reverberated in the world's ports, leaving cargo stranded on docks, as banks cease lending and slow global trade, the top executive of a Greek shipping company Excel Maritime Carriers Ltd (EXM.N) said.

Gold prices jumped more than 4 percent as investors sought safety in bullion. The precious metal is up about 20 percent since September 11, when investment banking titan Lehman Brothers Holdings Inc's (LEHMQ.PK) stock price collapsed, raising questions about the global banking system.