US markets wary over rescue deal

The markets remain nervous

US shares have fallen sharply with investors cautious over whether the House of Representatives will back the revised bank rescue plan.

The House is due to discuss the scheme later, with a vote expected on Friday. The bill successfully passed through the US Senate on Wednesday.

On Wall Street, the Dow Jones index was down 263 points or 2.4% at 10,571, a slide dragging European shares lower.

The falls came as France said it would host a summit on the financial crisis.

The UK’s FTSE 100 closed was down 1.8% to 4,870.3 points while Germany’s Dax index shed 2.5% and France’s Cac 40 lost 2.3%.

Sentiment was further hit by glum economic data – showing that the number of people filing for new unemployment benefit claims rose to a seven-year high, while factory orders had seen a steeper-than-expected drop in August.

European talks

The office of French President Nicolas Sarkozy said the special meeting on Saturday would discuss a co-ordinated response to the financial turmoil amongst European members of the G8 ahead of a meeting of world finance leaders in Washington next week.

UK Prime Minister Gordon Brown is due to attend, together with German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi and European Central Bank President Jean-Claude Trichet.

Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy Aric Au, Phillip Securities

But with just two days to go before the talks start, EU members are deeply divided, correspondent said.

France and Holland favor a European response to help banks hit by the credit crisis while Germany and Luxembourg believe a joint rescue plan is not necessary.

European leaders have denied speculation that they wanted to establish a unified 300bn euro ($418.4bn; £236bn) banking rescue deal along the same lines as the US plan.

The rescue idea was said to be being proposed by France, but Mr Sarkozy insisted that there were no such plans.

“I deny both the amount and the principle [of such a plan],” he said.

‘Essential’

In the US, a number of changes had to be made to the $700bn (£380bn) bail-out plan in order to help win approval in the Senate.

These include raising the government’s guarantee on savings from $100,000 to $250,000, tax breaks to help small businesses, expansion of child tax credit, and help for victims of recent hurricanes.

President George W Bush said that the package was “essential to the financial security of every American”.

However, economists said doubts remained about how effective the package would be.

“Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy,” said Aric Au of Phillip Securities in Hong Kong.

McCain and Obama

US presidential hopefuls John McCain and Barack Obama, who both returned from the campaign trail for last night’s Senate debate, voted in favor of the rescue plan.

Senate majority leader Harry Reid, a Democrat, said he was happy with the result and praised both presidential candidates for voting.

“I think it shows that when we work together we can accomplish good things,” he said.

Mitch McConnell, leader of Republican senators, was also in jubilant mood.

“This was a measure that was much needed, to unfreeze the credit markets and get America’s economy working again,” he said.

Russian troops ‘start withdrawal’

Moscow’s troops continue to operate deep inside the Caucasus republic

The Russian commander of front line forces in Georgia has told that a gradual withdrawal of Russian forces from Georgia is under way.

Maj Gen Vyacheslav Borisov said he had given the order for Russian soldiers to be replaced by peacekeepers.

Russian forces in position 35km (22 miles) from the Georgian capital, Tbilisi, on the road to Gori, close to South Ossetia.

Russia said it did not have a timetable for a full withdrawal from Gori.

Russia still controls almost all of the main arterial highway running east-west through Georgia, and the main towns along the route.

Russia’s claimed redeployment comes a day after Moscow signed a French-brokered peace plan to end the crisis.

Conflict between Georgia and Russia erupted on 7 August when Georgia launched an assault to retake its Russian-backed separatist province of South Ossetia.

It led to a massive counter-offensive by Russia, with Russia moving deeper into Georgian territory.

The US has demanded Russian troops pull out, but Moscow says it will only withdraw from Georgian territory once extra security measures are in place.

International attention

French President Nicolas Sarkozy, who mediated the peace deal on behalf of the European Union, has warned Moscow that the ceasefire bars its forces from any “major urban area” in Georgia.

However, in a letter addressed to his Georgian counterpart, Mikhail Saakashvili, Mr Sarkozy said Russian troops did have the right to patrol “a few kilometres” beyond the conflict zone in South Ossetia.

But he underlined that clauses in the agreement permitting Russia to implement additional security measures “in no way limit or put in danger the freedom of movement and travel along the road and rail axes of Georgia” and could not be applied in any towns or cities.

PEACE PLAN No more use of force Stop all military actions for good Free access to humanitarian aid Georgian troops return to their places of permanent deployment Russian troops to return to pre-conflict positions International talks about future status of South Ossetia and Abkhazia

“I am particularly thinking of the city of Gori,” he said, which is the largest town close to the South Ossetia border.

There is a much reduced Russian military presence in the town compared with Saturday – though Russian soldiers still control the town’s key entry and exit points.

He says that even if Russian peacekeepers replace soldiers, local residents say it will not make much difference.

Meanwhile, US President George W Bush has reiterated his staunch support for ally Georgia.

The German Chancellor, Angela Merkel, is due to hold talks with Mr Saakashvili in Tbilisi later on Sunday.

Meanwhile, Human Rights Watch has called on the Russian authorities to immediately take steps to end attacks by South Ossetian militias on ethnic Georgians in Gori and to allow vital humanitarian aid to reach vulnerable civilians.

“The Russian military has effective control of the Gori region, making it responsible for the security and well-being of all people living there,” said Rachel Denber, HRW’s Europe deputy director.

Russian control

The BBC’s Richard Galpin, who has spent the past two days traveling from the Black Sea port of Poti to Tbilisi, says Georgian forces seem to be surrendering control of the highway to the Russians.

The UN puts the number of those displaced in the conflict at 118,000

In the western town of Senaki, our correspondent saw large numbers of Russian troops moving around on Saturday.

Further east in Zestafoni, he witnessed the panic of local residents as the word spread that the Russian army was approaching.

Cars sped away from roadblocks set up by the Georgian police, the drivers realizing their hopes of reaching Tbilisi had been dashed.

When the Russians arrived, they stayed only a few minutes after apparently being told there was no military base to take over.

Our correspondent says he then followed the Russian troops as they entered the central town of Khashuri, where they were given an escort by the local police.

He spoke to one Russian soldier who said he believed their final destination would be the Georgian capital, although the Kremlin flatly denied this. Another soldier said he expected to be in Georgia for a year.

Georgia has meanwhile accused pro-Russian Abkhaz separatist fighters of taking over 13 villages and a hydroelectric power plant. There has so far been no independent confirmation.

Security steps

Among the six points in the ceasefire deal, both sides agreed to pull back their forces to their positions before hostilities began on 7 August.

Diplomats have said that the UN Security Council is expected to vote later on Sunday on a draft resolution formalising the ceasefire agreement.

President Bush has said Mr Medvedev’s signing of the truce is “hopeful”, but that there can be no question that South Ossetia and Abkhazia will remain within Georgian borders, which are internationally recognised.

Reports suggest Mr Saakashvili only reluctantly agreed to another of the plan’s clauses – international talks about the future status of South Ossetia and Abkhazia.

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Russian tanks enter South Ossetia

Courtesy BBC

Footage reportedly shows Russian tanks entering South Ossetia

Russian tanks have entered Georgia’s breakaway region of South Ossetia, says Georgian President Mikhail Saakashvili.

Georgia has been fighting separatists with ties to Russia in order to regain control of the province, which has had de facto independence since the 1990s.

Georgia is reported to have said any involvement of Russian forces in the conflict will result in a state of war.

Amid international calls for restraint, Russia’s president promised to defend Russian citizens in South Ossetia.

Moscow’s defence ministry said more than 10 of its peacekeeping troops in South Ossetia had been killed and 30 wounded in the Georgian offensive. At least 15 civilians are also reported dead.

‘Clear intrusion’

Georgia’s president said 150 Russian tanks and other vehicles had entered South Ossetia.

Georgian President Mikhail Saakashvili says he is willing to agree an immediate ceasefire

He told CNN: “Russia is fighting a war with us in our own territory.”

Mr Saakashvili, who has called on reservists to sign up for duty, said: “This is a clear intrusion on another country’s territory.

“We have Russian tanks on our territory, jets on our territory in broad daylight,” Reuters new agency quoted him as saying.

Later, Moscow’s foreign ministry told media that Russian tanks had reached the northern outskirts of the South Ossetian capital, Tskhinvali.

The Georgian interior ministry said Russian jets had killed three Georgian soldiers at an airbase outside the capital, Tbilisi, during a bombing raid on Friday, Reuters news agency reported.

I must protect the life and dignity of Russian citizens wherever they are. We will not allow their deaths to go unpunished Dmitry Medvedev Russian President In pictures: Unrest in Georgia Bitterness turns to conflict

Russia denied any of its fighters had entered its neighbour’s airspace.

Moscow’s defence ministry said reinforcements for Russian peacekeepers had been sent to South Ossetia “to help end bloodshed”.

Amid reports of Russian deaths, President Dmitry Medvedev said: “I must protect the life and dignity of Russian citizens wherever they are,” Interfax news agency reported.

“We will not allow their deaths to go unpunished. Those responsible will receive a deserved punishment.”

‘Ethnic cleansing’

Russian Foreign Minister Sergei Lavrov said Moscow was receiving reports that villages in South Ossetia were being ethnically cleansed.

Russian Foreign Minister Sergei Lavrov

Mr Lavrov added in televised remarks: “The number of refugees is growing. A humanitarian crisis is looming.”

Russia said it would cut all air links with Georgia from midnight on Friday.

Meanwhile Interfax quoted South Ossetian rebel leader Eduard Kokoity as saying there were “hundreds of dead civilians” in Tskhinvali.

Witnesses said the regional capital was devastated.

Lyudmila Ostayeva, 50, told AP news agency: “I saw bodies lying on the streets, around ruined buildings, in cars. It’s impossible to count them now. There is hardly a single building left undamaged.”

SOUTH OSSETIA TIMELINE 1991-92 S Ossetia fights war to break away from newly independent Georgia; Russia enforces truce 2004 Mikhail Saakashvili elected Georgian president, promising to recover lost territories 2006 S Ossetians vote for independence in unofficial referendum April 2008 Russia steps up ties with Abkhazia and South Ossetia July 2008 Russia admits flying jets over S Ossetia; Russia and Georgia accuse each other of military build-up 7 August 2008 After escalating Georgian-Ossetian clashes, sides agree to ceasefire 8 August 2008 Heavy fighting erupts overnight, Georgian forces close on Tskhinvali

US President George W Bush spoke with Russian Prime Minister Vladimir Putin about the crisis while they attended the Beijing Olympics.

Later, the US voiced support for Georgia’s territorial integrity and its state department said it would send an envoy to the region.

Nato said it was seriously concerned about the situation, while German Chancellor Angela Merkel called on all sides to show restraint.

The European security organisation, the OSCE, warned that the fighting risked escalating into a full-scale war.

Georgian Foreign Minister Ekaterine Tkeshelashvili told the BBC it wanted to ensure that any civilians who wanted to leave the conflict zone could do so safely.

International Red Cross spokeswoman Anna Nelson said it had received reports that hospitals in Tskhinvali were having trouble coping with the influx of casualties and ambulances were having trouble reaching the injured.

Georgian Prime Minister Lado Gurgenidze said Georgia had simply run out of patience with attacks by separatist militias in recent days and had had to move in to restore peace in South Ossetia.

Truce plea

Georgia accuses Russia of arming the separatists. Moscow denies the claim.

Russia earlier called an emergency meeting of the UN Security Council to respond to the crisis, but members failed to agree on a Russian statement calling on both sides to renounce the use of force.

The BBC’s James Rodgers in Moscow says Russia has always said it supports the territorial integrity of Georgia but also that it would defend its citizens. Many South Ossetians hold Russian passports.

Hundreds of fighters from Russia and Georgia’s other breakaway region of Abkhazia were reportedly heading to aid the separatist troops.