Shares slide amid bail-out fears

European shares have fallen, following sharp drops in Asia, amid wrangling in the US over the massive $700bn financial bail-out plan.

Doubts over how soon the rescue plan can be applied have emerged from both the Democrats and Republicans.

London's FTSE 100 fell 2.2%, while the Cac 40 in Paris slid 1.9% and Frankfurt's Dax shed 1%. Hong Kong's HSI ended nearly 4% lower.

On Monday, US shares fell sharply, with the Dow Jones index closing down 3.3%.

Banks were among the main fallers in morning trade in Europe with Deutsche Bank and Royal Bank of Scotland both shedding more than 5% and Swiss firm UBS down 4.2%.

While the bail-out package was welcome when it was made official last week, there are concerns about how the $700bn plan will come into effect in practice.

The White House says Congress must back the rescue plan to stop wider economic harm.

The Government of Singapore Investment Corporation (GIC), a sovereign wealth fund that has acquired shares in UBS and Citigroup, expressed concerns over the risks of stalling the rescue plan.

And ongoing nerves about the financial sector continue globally, after markets saw sharp volatility last week in the wake of upheaval among banks.

Many politicians appear alarmed by the scale and implications of the global financial crisis.

While most US politicians are anxious to find bi-partisan ways to back the bail-out, others criticise what they see as a waste of taxpayers' money, correspondents say.

In the US on Monday, the Dow Jones index closed 372.75 points, or 3.3% lower, at 11,015.6, wiping out the gains made during Friday's rally.

Banking shares were particularly hard hit, as many investors switched to commodities such as oil and gold. Oil recorded its largest-ever one-day gain on Monday.

The share falls came as US lawmakers held talks with the administration on the proposed bail-out.

It allows Treasury Secretary Henry Paulson to set up a fund to buy back much of the bad debt held by US banks and financial institutions.

With the immediate sense of imminent collapse now passing, dissenting voices are beginning to emerge, says the BBC's Kevin Connolly in Washington.

Contentious issues include limiting compensation for executives of rescued firms, wider help for American homeowners at risk of losing their homes and demands for oversight.

"The Bush Administration has called on Congress to rubber stamp its bail-out legislation without serious debate or efforts to improve it," said US Senate Majority Leader Harry Reid. "That will not happen," he said.

Richard Shelby, a senior republican on the Senate Banking Committee, also hit out at the plan.

"It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.

President George W Bush has warned that "failure to act would have broad consequences".

Both Mr Paulson and Federal Reserve Board Chairman Ben Bernanke are scheduled to testify before the Senate Banking Committee on Tuesday.

source: BBC