The US Senate endorsed a revised $700 billion plan to tackle a financial crisis that has shaken world markets and drawn warnings of approaching economic catastrophe.

The plan now faces a final hurdle in the House of Representatives, which rocked global markets this week by rejecting an earlier version. President George W. Bush, speaking after Wednesday night?s 74-25 Senate vote, called the bail out ?essential to the financial security of every American?.

But the crisis, beginning with a collapse in the US housing market and spreading to major financial institutions, has reverberated beyond American shores, hitting European banks and spurring moves there to formulate a similar support plan.

<B> ?Global meltdown?

US figures showing falling factory output and plunging car sales added to evidence the crisis is spreading now to the ?real economy?, threatening industry, smaller businesses and jobs.

The bail out plan, equivalent to some $2,300 per American, is intended to reinvigorate credit markets and interbank lending that had frozen up while overleveraged financial institutions staggered under the weight of failed mortgages.

It has stirred fierce criticism from those who see it as help for a Wall Street guilty of taking reckless risks in pursuit of short-term profit.The Treasury aims to take on illiquid assets held by banks, hoping to unfreeze credit markets vital to the wider economy.

Market participants warned that the rescue package is not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.?Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize,? said Masamichi Adachi, senior economist at JPMorgan in Tokyo.?It?s a completely different world now. All the things US authorities are doing now are simply aimed at preventing a global meltdown.?

Stocks in Asia were lower on Thursday on recession fears, and European stocks were slightly stronger. Interbank lending rates, a gauge of general confidence within the banking system, remained high, reflecting continued uncertainty despite the Senate vote and large injections of cash by central banks.

President Bush, his personal authority eroded by the approaching end of his term in office, praised Senate passage of the package and urged the House to quickly do the same when it votes, probably today.?With the improvements the Senate has made, I believe members of both parties in the House can support this legislation,? Bush said in a written statement.

Leaders in the US House of Representatives expressed cautious optimism that the legislation would be approved.Senate leaders hope that sweetening the plan with a tax cut and extended federal protection for bank deposits can turn «no» voters into supporters. On Monday, the House rejected the previous version of the plan by a 228-205 vote.

?It?s still uncertain. I think it is likelier to pass than before,? House Financial Services Committee Chairman Barney Frank said in an interview on CNN. ?The main change is reality. I think that it?s not possible now to scoff at the predictions of doom if we don?t do anything,? the Massachusetts Democrat added.

?Keep business going?

Many Americans resent the idea that Wall Street is being ?bailed out? at taxpayer expense, and have made their views clear in emails and calls to Washington, putting pressure in particular on vulneable members of the House.

All 435 House seats will be contested in the election on November 4, as opposed to 35 seats up for grabs in the Senate. Switzerland?s UBS AG, which has written off more than any other Europan bank this year because of exposure to US ?toxic? assets, offered some good news for markets, announcing it would make a small profit in the third quarter.

But Britain?s Nationwide building society said house prices in August were 12.4 % lower than a year earlier, their highest annual drop since records began in 1991.The country?s biggest retail chain Marks and Spencer posted a 6 percent drop in second-quarter core sales and said it was cutting investment.

Treasury Secretary Henry Paulson, whose original three-page proposal grew to hundreds of pages when Congress got involved, urged the House to act swiftly to ratify it. Should the House uphold the bill, it would go to the White House for signature into law by President Bush. ?This sends a positive signal that we stand ready to protect the US economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going,? Paulson said.

The financial crisis has become the biggest issue in the forthcoming U.S. elections, and both presidential candidates, Republican Senator John McCain and Democratic Senator Barack Obama, voted for the package.

Stocks in Tokyo dropped 1.9 % yesterday, while MSCI?s share index for the rest of Asia lost 1.2 percent. Oil gained $1 a barrel.?If the massive expansion of the Fed?s balance sheet and other CB (central bank) liquidity injections cannot do the trick then coordinated global rate cuts becomes likely and necessary,? Michael Hartnett, chief emerging markets equity strategist at Merrill Lynch, wrote in a note.

In Europe, France and Germany clashed over the idea of a US-style financial rescue fund for Europe amid further signs of contagion from the global credit crisis.

OIL FALLS

Oil fell by more than $2.00 to below $97 a barrel yesterday after the US Senate?s approval of a $700 billion bail out of the financial industry failed to allay concerns over weakening demand and growing supplies in the country.

The package for Wall Street, which has yet to be approved by the House of Representatives, rekindled hopes that the credit crisis could be eased, but traders and analysts said the supportive effect would be limited as eyes remained on falling demand. US light crude for November delivery fell $1.54 cents to $96.99 by 0737 GMT, off an earlier low of $96.50 and erasing earlier gains above $100 before the vote. It settled down $2.11 at $98.53 on Wednesday, when US government data showed supplies rising and on a firmer dollar.

London Brent was down $1.48 at $93.85, off an earlier low of $93.24. ?Once the bill is finally approved, I would expect crude oil to sell off. In the short term, I would look for us to head for the low $90s,? said Jonathan Kornafel, Asia Director, Hudson Capital Energy Singapore. ?We may move higher today or tomorrow, but in the fourth quarter of 2008 and first quarter of 2009, I would expect crude to trend lower,? he added.

Oil prices have tumbled from record highs above $147 a barrel in July on signs of slowing oil demand from industrial economies. Pressure has also come as investors sell oil and other commodities and move cash into safer investments amid turmoil in financial markets. US government data on Wednesday showed crude oil inventories up 4.3 million barrels last week as output from the Gulf of Mexico continued to recover from disruptions caused by Hurricane Ike. 

Gasoline inventories also showed a surprise 900,000-barrel rise as more refinery capacity came back online following the storm, which caused the worst disruption to the US.energy sector since the 2005 hurricane season, the US data from the Energy Information Administration showed.

Rising supplies compounded falling demand with total US oil product demand over the past four weeks down 7.1 % from a year earlier, as the growing economic crisis and high fuel costs have continued to clip demand in the world?s top consumer.The bailout vote failed to lift markets significantly so far.