NEW YORK (Reuters) - U.S. lawmakers neared agreement on a massive financial bailout plan with more protection for taxpayers, but turmoil in money markets and a blast of grim economic data raised doubts over whether it can staunch a deepening crisis.
Congress hopes to reach a bipartisan consensus on a $700 billion rescue plan in time for a 4 p.m. Thursday emergency meeting with U.S. President George W. Bush and the two men battling to succeed him, Democrat Barack Obama and Republican John McCain.
As lawmakers met, banks worldwide hoarded cash and demonstrated a growing reluctance to lend, causing rates that institutions charge to each other on loans to soar.
Officials from France to China voiced alarm. “A crisis of confidence without precedent is shaking the global economy,” French President Nicolas Sarkozy said in a speech. “A certain idea of globalization is drawing to a close with the end of a financial capitalism that had imposed its logic on the whole economy and contributed to perverting it.”
The swirl of meetings in Washington followed fresh turbulence in the world economy.
Orders for costly U.S. manufactured goods plunged in August, new-home sales hit a 17-year low, while new claims for jobless benefits shot up last week, according to government reports that showed the world’s largest economy rapidly weakening.
Top U.S. industrial conglomerate General Electric Co (GE.N), widely seen as a bellwether of the U.S. economy, issued a profit warning, citing “unprecedented weakness and volatility” in the financial services market.
The crisis reverberated in Amsterdam and Brussels, where FortiS NV FOR.BR, the Belgian-Dutch financial services group, denied a rumor that the Dutch Central Bank had asked a rival group to support Fortis’ liquidity position. Its shares sank as much as 21 percent to 14-year lows.
In Asia, hundreds of people lined up outside the Hong Kong branches of the Bank of East Asia Ltd (0023.HK), some sleeping there overnight, to withdraw their savings amid fears the bank could be Asia’s first victim of the year-old credit crisis.
More than 400 customers crammed into the bank’s only branch in Singapore, despite assurances from the city-state’s monetary authority that the bank was sound and news that billionaire Li Ka-shing had bought stock in the bank in a vote of confidence.
China’s banking regulator sought to reassure jittery financial markets, denying a report that it had told local banks to stop lending to U.S. banks and stressing that foreign bank operations in China were healthy.
Signs of a possible breakthrough on the rescue package, which aims to stave off a widespread financial meltdown, gave beleaguered U.S. stocks and the U.S. dollar a boost.
The Bush administration hopes to restore liquidity to financial markets and revive the foundering U.S. economy by spending $700 billion to buy up toxic mortgage-related securities held by financial firms and other sour assets.
But just weeks before Americans go to the polls to elect their next president, critics are concerned the plan will let freewheeling bankers off too lightly, and doubts have surfaced over whether it can solve the wider crisis.
“We’ve made a lot of progress. I think the House and Senate Democrats have come to agreement. We’re now going to talk to Republicans. We’re in substantial agreement on most of the issues,” said U.S. Rep. Barney Frank, chairman of the House Financial Services Committee.
U.S. Treasury Secretary Henry Paulson was expected to work the phones to try to reach a deal with Congress and was closely monitoring the situation in stressed credit markets.
Lawmakers are seeking several concessions from the White House, including a curb on the pay of executives whose companies seek government help, and a provision that would give taxpayers an equity stake in some of the companies so the government can profit if they prosper in the future.
“I‘m optimistic it will pay for itself and make money for the taxpayers, especially if you (the government) take an equity position that makes these companies healthy,” U.S. House Speaker Nancy Pelosi, a California Democrat, told reporters.
“The money comes back to the Treasury,” she added.
Treasury spokeswoman Brookly McLaughlin said discussions with lawmakers are “ongoing” and declined to comment on statements by Charles Schumer, the New York Democrat who chairs the congressional Joint Economic Committee, and House of Representatives Majority Leader Steny Hoyer that a deal could be reached today.
U.S. stocks rose about 2 percent, while the dollar rebounded on hopes for a deal in Washington.
“I certainly think that Congress will pass something and that will help for a little while,” said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
Still, there was gnawing concern that even if Congress approves a bailout, it may lack the muscle to save the U.S. economy from recession or a steep economic tumble, potentially squeezing the slowing world economy.
“The U.S. may be closer to reaching a deal to approve the bailout, but there is still a lot of uncertainty on its overall impact on the economy,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd.
German Finance Minister Peer Steinbrueck said one outcome of the crisis would be a less dominant role for the United States in the global financial system.
“The United States will lose its superpower status in the world financial system. The world financial system will become more multipolar,” he said.
Reporting by Richard Cowan, Alister Bull, David Lawder, Kevin Drawbaugh, Glenn Somerville, Noah Barkin, Richard Cowan and Ellis Mnyandu. Writing by Jason Szep and Jason Neely; editing by John Wallace/Jeffrey Benkoe