Second opportunity for bailout package

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President George W. Bush. Photo: EFE

The U.S. Senate will vote on Wednesday night on a new version of the $700 billion bailout package for Wall Street, rekindling hopes that the credit crisis can be stemmed before claiming yet more banks and causing further damage to the global economy.

U.S. stocks, after suffering their worst fall in 21 years on Monday after the House of Representatives rejected the original package, roared back on Tuesday as investors bet Washington would save the package to stabilize banks and markets.

The Standard & Poor's 500 index shot up by more than 5 percent, its biggest one-day gain in six years, and Asian stocks followed suit on Wednesday, though gains there were tempered by further evidence of economic slowdown.

The revised package the Senate unanimously agreed to vote on would increase to $250,000 from $100,000 the amount of individual deposits insured by the Federal Deposit Insurance Corp (FDIC), seeking to shore up consumer and business confidence in banks.

It may also win over lawmakers trying to sell their constituents on an expensive plan funded by taxpayers and seen as benefiting wealthy financiers.

If the bailout package passes in the Senate, as expected, it will put more pressure on the House of Representatives to follow suit when it meets again on Thursday.

President George W. Bush, Treasury Secretary Henry Paulson and the two candidates hoping to succeed Bush as president, Republican Sen. John McCain and Democratic Sen. Barack Obama, reaffirmed their support for a bailout plan on Tuesday.

Both Obama and McCain said they would return to Washington for the vote, due sometime after 7:30 p.m. EDT (2330 GMT). The plan, which would allow the Treasury to buy toxic mortgage-related assets from banks, has been the main hope for government action to unlock credit markets and head off a deeper economic downturn in the United States and abroad.

U.S. regulators were also readying a revision of the "fair value" accounting rule that has led to massive charges on mortgage-related assets, and has been blamed for deepening the credit crisis. That would mean U.S. banks would not need to mark hard-to-price assets down to firesale prices.

Global money markets remained in near paralysis after London interbank offered rates shot to record levels on Tuesday, as banks remained wary of lending to each other.

The central banks of Japan and Australia kept injecting extra funds into their markets on Wednesday and overnight dollar borrowing costs stayed near 6 percent in Asia -- three times the Federal Reserve's target for overnight rates.