House set for fresh bail-out vote

President Bush has said the bill is the best chance of rescuing the economy

The US House of Representatives is preparing to vote on a $700bn (£380bn) plan to rescue the US financial sector.

Party leaders are hoping the House, which stunned global markets by rejecting the initial plan, will follow the Senate and back a new version.

The House began debating the deal on Friday morning and is expected to vote later in the day.

The Senate bill added about $100bn in new tax breaks in the hope of gaining more support from House Republicans.

The New York stock exchange opened shortly after the debate began and the Dow Jones Industrial Average jumped more than 100 points in early trading.

But earlier in Japan, shares fell to a three-year low. The Nikkei index closed down more than 1.9%, its lowest level since May 2005.

In Europe, shares were relatively flat. In early afternoon trading the UK’s FTSE 100 was down just 18 points, France’s Cac 40 was down nine and Germany’s Dax up seven.

The financial volatility continued on Friday as US bank Wells Fargo announced it would buy troubled rival Wachovia in a $15.1bn (£8.5bn) deal.

The US also reported its biggest monthly job loss in more than five years.

Bush plea

In Washington, House Speaker Nancy Pelosi, a Democrat, has said no vote will be scheduled until the party feels it will pass.

NEW MEASURES IN BAIL-OUT BILL Increased protection for saving deposits Increased child tax credits More aid for hurricane victims Tax breaks for renewable energy Higher starting limits to alternative minimum tax

“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,” she said.

When the House first rejected the plan on Monday – by 228 votes to 205 – legislators had concerns about both the content of the plan and the speed with which they were being asked to pass it.

President George W Bush has since urged the House to back his revised bill.

The package is aimed at buying up the bad debts of failing institutions on Wall Street.

Both the Democratic and Republican parties are pressing their members in the House to swing behind the revised bill and party leaders expect it to pass.

This thing, this issue, has gone way beyond New York and Wall Street President George W Bush

Some members have called for more amendments, which opens up the prospect of further horse-trading up to the point at which votes are cast.

Pressure will particularly be applied to the 133 House Republicans who went against party affiliation to reject President Bush’s bill, correspondents say.

Tennessee Republican Zach Wamp, one of those who voted against the bill on Monday, said he would now vote in favor of the measure despite ordinary Americans remaining “as mad as heck” at the situation on Wall Street.

“You have got to do what you think is right. I thought the right thing Monday was to vote no. And I think the right thing to do tomorrow is to vote yes.”

The bill successfully passed through the Senate on Wednesday after it was amended to raise the government’s guarantee on savings from $100,000 to $250,000.

It also now includes tax breaks to help small businesses, expand the child tax credit and extend help to victims of recent hurricanes.

Most importantly, it extends the tax break aimed at boosting the provision of alternative energy such as wind farms.

It also includes a number of so-called “pork-barrel” measures including tax cuts for rum manufacturers in Puerto Rico and the owners of racetracks.

The additional cost of these unrelated tax breaks – which could add $100bn to the bill – have worried some fiscally conservative Democrats in the House of Representatives.

Investors cautious amid turmoil

Asian share prices have continued to fall as confidence remains low

European stocks rise in cautious trade as Lloyds TSB’s takeover of UK lender HBOS dispelled some of the gloom hanging over financial markets.

Asian shares had earlier fallen sharply on fears that more companies could fall victim to the global financial crisis.

London’s FTSE 100 index was up 0.8% at 4,951 points shortly after the open and France’s main stock index rose 0.6%.

In Asia, Tokyo’s Nikkei share index dropped by 2% while Hong Kong’s main stock index slid by 7%.

Share indexes in Shanghai, Taiwan and India fell by between 3 and 5%.

Hong Kong’s Hang Seng index dropped below the 17,000 mark and Australian shares closed 4% lower.

On Wednesday, the Dow Jones index of leading US stocks fell by more than 4%.

Flight to safety

Brokers in Japan say the markets are in freefall because investors fear the US government’s efforts to stop the turmoil in the financial system are not working.

As a result, investors are looking for safer places to put their money than stocks and shares.

Traders saw plummeting shares on Wall Street on Wednesday

Many Japanese institutions have assets insured by AIG, the insurance company that was rescued by the US government on Tuesday.

And in Singapore, for the second day running, hundreds of AIG policyholders queued up outside its offices trying to surrender or cancel policies they fear could turn out to be worthless.

Feverish speculation

The US Federal Reserve’s AIG rescue package followed the collapse earlier this week of 150-year-old US investment bank Lehman Brothers, which sent shockwaves through the world’s financial community and sparked a global share price plummet.

Another investment bank, Merrill Lynch, has since been sold off to Bank of America. And in the UK, HBOS is being taken over by Lloyds TSB in a £12.2bn deal.

There has also been feverish speculation about the future of two other leading US banks – Morgan Stanley and Washington Mutual.

The New York Times quoted unnamed sources as saying an auction for Washington Mutual was under way. The Wall Street Journal reported that both banking giant Citigroup and Wells Fargo had expressed an interest in a takeover.

Meanwhile the Reuters news agency reported that Morgan Stanley, the second largest US investment bank in the US which on Wednesday saw a quarter of its value wiped off its share price, had held preliminary takeover talks with Wachovia.

None of the companies involved has made any comment on the speculation and no negotiations can be confirmed.

Banks take action

The Bank of Japan has injected another 1.5 trillion yen ($14.4bn; £7.9bn) into money markets to help stabilise them. Australia took similar steps.

The Japanese central bank’s injection was the third consecutive day it had tried to shore up cash markets as the Nikkei trades at a three-year low.

Across Asia, central banks have already pumped $33bn into money markets this week in an attempt to allay investors’ concerns and ensure the supply of funds does not dry up.

US rules out new economic package

Jobs are being lost in the service, business and manufacturing sectors

The United States government says it does not see an immediate need for new measures to stimulate the US economy despite a sharp rise in unemployment.

The latest figures show a rate of 6.1% – the highest since December 2003.

A White House spokeswoman said that while the figures were disappointing, the existing economic stimulus plan was having the impact intended.

A call for more action had been made by the Democratic Party presidential candidate, Barack Obama.

A higher-than-expected 84,000 jobs were lost last month, which together with the unemployment rate has added to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

A separate report by the Mortgage Bankers Association said that almost one in 10 US homeowners were behind with their mortgage payments or was in foreclosure procedures.

The 9.2% default rate between April and June was up from 8.8% in the previous quarter, and nearly double the rate one year ago.

‘Convincing evidence’

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

“It seems unemployment in the US really is accelerating,” said the BBC’s North America business correspondent, Greg Wood.

“There do not seem to be many sectors of the US economy which are hiring.”

‘Clearly deteriorating’

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.

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