US markets wary over rescue deal

US shares have fallen sharply with investors cautious over whether the House of Representatives would 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 closed down 348 points, 3.2% at 10,482, dragging European shares lower.

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

Oil impact

The Nasdaq index slipped 4.5%, 92.7 points to close at 1,976.7.

Earlier, the UK's FTSE 100 closed down 1.8% at 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.

And doubts that any approved bailout plan would be enough to avoid a long economic slump and revive flagging energy demand sent oil prices lower. US light, sweet crude fell $4.56 to $93.97.

"There's a big fear that the bill is not going to pass, which is weighing on the markets, and at the same time, we are watching commodities totally fall apart," said Angel Mata of Stifel Nicolaus Capital Markets in Baltimore.

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.
But with just two days to go before the talks start, EU members are deeply divided, the BBC's Paris correspondent Emma-Jane Kirby said.

France and Holland favour 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 Wednesday's Senate debate, voted in favour 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.

source; BBC