Bush pushes revived bailout

By Eddie Evans and Kevin Krolicki

NEW YORK/WASHINGTON (Reuters) - U.S. lawmakers and President George W. Bush eased pressure on financial markets on Tuesday by starting work to revive a $700 billion bailout plan to stem a credit crisis that has spread beyond Wall Street to claim more European banks.

U.S. stocks roared back -- a day after their worst sell-off in 21 years -- and the dollar rallied as investors bet Washington would manage to salvage a package to stabilize the financial sector after Monday's shock defeat on Capitol Hill.

The Standard & Poor's 500 index shot up by more than 5 percent, the biggest one-day gain for that measure of the broad market in six years.

The relief rally came as the White House, Treasury Secretary Henry Paulson and the two candidates hoping to succeed Bush as president, Republican John McCain and Democrat Barack Obama, reaffirmed their support for a bailout plan. Congressional leaders started talks to relaunch the package this week.

"There's an overarching belief that at some point this week, whether it's Wednesday or Thursday, we'll get something passed by the House," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

Global money markets remained frozen, and London interbank offered rates shot to record levels, indicating banks were not lending to each other. The rate for overnight dollar loans rose to nearly 6.9 percent from just over 2.5 percent on Monday.

The U.S. bailout plan, which would allow the Treasury Department to buy toxic mortgage-related assets from banks, had been the main hope for government action to unlock credit markets and head off a deeper economic downturn in the United States and abroad.

"I assure our citizens and citizens around the world that this is not the end of the legislative process," Bush said.

U.S. regulators were also readying a revision of the "fair value" accounting rule that has led to massive charges on mortgage-related assets, and has been blamed for deepening the credit crisis. The upshot: U.S. banks do not need to mark hard-to-price assets down to firesale prices.

In a separate move intended to shore up consumer and business confidence in banks, the Federal Deposit Insurance Corp (FDIC) is looking to increase the amount of individual deposits it insures.

"All eyes are still on the authorities and their attempts to rescue the financial system," said Vassili Serebriakov, currency strategist at Wells Fargo Bank. "While the Treasury's bailout plan was rejected by lawmakers yesterday, most are still waiting for either a new vote or a 'plan B' type of move."

GLOBAL AFTERSHOCKS

From Dublin to Moscow, the financial crisis is an ominous presence.

Ireland unveiled a blanket guarantee for savings held by its banks, and for the second time in a month Russia briefly shut down its stock markets.

France, Belgium and Luxembourg poured 6.4 billion euros into Franco-Belgian bank Dexia to avoid defaults on its loans, and France promised new bank measures to help depositors.