Crisis spreads; bailout focus on House

By Eddie Evans and Kevin Krolicki

NEW YORK/WASHINGTON (Reuters) - Shockwaves from the global credit crisis spread on Thursday, rattling industries around the world and raising the stakes for the U.S. Congress to finish up a $700 billion bank bailout.

U.S. economic data amplified warnings that a recession is near, and European Central Bank President Jean-Claude Trichet said Europe's economy was weakening, opening the door for the first interest rate cut there in five years.

Business leaders from hoteliers to automakers and in sectors as far-flung as farming and mining warned that a crisis that began with risky lending to the overheated U.S. housing market was on the cusp of a dangerous new phase.

"There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical," Marriott International Inc Chief Financial Officer Arne Sorenson said in urging Congress to pass the bailout.

Backers of the rescue plan, including U.S. Treasury Secretary Henry Paulson, called on members of the House of Representatives who voted down a similar measure on Monday to change their vote. After the shock rejection of the plan, the Senate passed a sweetened version on Wednesday night and the House is expected to vote again on Friday.

Investors scurried for safety, betting locked-down credit markets would start to shut down global economic growth.

Latin American currencies tumbled and stocks sank, led by a nearly 8 percent drop in Brazil's benchmark stock index, as concern grew that the U.S. rescue package would be too little and too late to head off a deeper downturn.

U.S. stocks dropped 4 percent, while U.S. and euro-zone government bonds drove higher in a renewed safe-haven rally.

Underscoring the uncertainty, Wall Street's "fear barometer" -- an index that measures the volatility priced into stock option prices -- spiked to a record close.

Oil prices fell more than $4 a barrel on the expected slowdown, and the dollar rose to a year high against the euro on the speculation of a rate cut by the ECB.

At the center of the storm, credit markets remained under deep stress. With banks fearful of lending to each other, direct bank borrowing from the U.S. Federal Reserve shot to a record high, averaging a staggering $368 billion per day.

U.S. AIMS TO PUT HOUSE IN ORDER

House Speaker Nancy Pelosi, a California Democrat, said congressional leaders were scouring for votes to pass the bailout bill -- and cautioned that there was probably not time to change the version passed by the Senate late Wednesday.

"We're not going to take a bill to the floor that doesn't have the votes. I'm optimistic that we will take a bill to the floor," Pelosi told reporters.

Meanwhile, a group of renegade Republicans, including 20 who voted no the first time, said they would seek to slash the amount authorized in the plan from $700 billion to $250 billion.