US lawmakers prepared to vote yesterday on a $700 billion government fund to buy bad debt as the global financial crisis kept markets on tenterhooks by forcing European authorities to rescue troubled banks.

As investors around the world hung on every twist and turn in Washington, Belgian-Dutch group Fortis was nationalised and British mortgage lender Bradford & Bingley faced the same fate.

Fortis is the first major European bank to buckle under the financial turmoil triggered in August last year by US mortgage defaults, and an early relief rally in markets at news of progress in Washington soon fizzled out.

Stock markets in Japan, South Korea and Hong Kong all retreated 1-2 %, giving up initial gains led by financial shares. US stock futures pointed to a drop at the opening bell as did European stock futures.

?Prevent a heart attack?

The dollar climbed, mainly due to the euro and pound sliding about 1 % as the toll on financial firms spread across the Atlantic and stirred expectations that central banks may have to respond by cutting interest rates.

?It?s definitely moving towards Europe,? said Joseph Kraft, head of Japan capital markets at Dresdner Kleinwort. ?It?s the beginning of the end and a necessary step, so we should see more institutions nationalised, absorbed or going into default.?

The latest upheaval will only worsen the severe strains in money markets as financial firms have all but stopped lending to each other, partly as they prepare to close their books on the third quarter today, analysts said.

In the United States, House Republicans were the main obstacle to passage of the bailout bill as they balked at spending so much public money just before elections in November. But senior Republican Senator Judd Gregg of New Hampshire threw his weight behind the deal, saying he expected the House to vote on the bill .

Senate Majority Leader Harry Reid said the Senate could take up the bill by Wednesday. US Treasury Secretary Henry Paulson said he was confident the programme will be enough to unclog jammed financial markets.

Congressional leaders from both parties said they had a tentative agreement on the day before.

But questions abound as to whether the US financial rescue plan, which would use taxpayer funds to buy up bad mortgage debt, would restore confidence to shaky markets and head off a deeper economic downturn. ?We will be given nitroglycerin to prevent a heart attack and get some colour back in our face,? said Sung Won Sohn, professor of economics at California State University.

In a sign the credit crisis was spreading, the Belgian, Dutch and Luxembourg governments nationalised financial group Fortis after European Central Bank President Jean-Claude Trichet held emergency talks with government officials over the fate of one of Europe?s top 20 banks. The governments agreed to inject 11.2 billion euros ($16.4 billion) into the banking and insurance company, which has 85,000 staff worldwide.

In London, regulators were also preparing to nationalise troubled mortgage lender Bradford & Bingley and Spanish bank Santander was in talks to buy its retail deposits and branch network.

In Germany, Hypo Real Estate struck a last-minute deal with a consortium of banks to resolve a financing squeeze, saying the credit facility was sufficient to cover its capital needs well into the future.