NEW YORK/WASHINGTON (Reuters) – The House of Representatives approved a $700 billion bailout package for U.S. banks, under pressure from all sides as the effort to head off a spreading financial crisis hung in the balance.
The House approved the financial rescue plan by a vote of 263-171, sending the measure to President George W. Bush and concluding two weeks of legislative haggling in Congress that had roiled and captivated global markets.
Wells Fargo & Co stepped in to buy Wachovia Corp, a bank badly hobbled by the credit crisis, providing a rare bit of positive news for the financial sector and sending markets higher.
In new signs of spreading crisis, California said it was running out of money, France said the world stood on the “edge of the abyss” and European leaders were divided over their own response to the global crisis.
The House had shocked world markets on Monday by rejecting a previous draft. With elections on November 4, lawmakers from both parties were wary of voter backlash in asking taxpayers to pay for Wall Street’s mistakes.
On Friday, speaker after speaker from both parties said rejecting the bailout could have devastating consequences for an already slowing U.S. economy, arguing the bill was as important for small businesses, homeowners, students and pensioners as it was for the financial sector.
“While the focus has been on the Dow Jones and Wall Street, we are addressing the real pain felt by Mr. and Mrs. Jones on Main Street,” said House Speaker Nancy Pelosi, a California Democrat.
Said House Republican leader John Boehner: “We have to act, and if we do not this crisis is likely to worsen and put us into an economic slump like many of us have never seen.”
Wells Fargo, one of the strongest U.S. banks, said it didn’t need the government help that Citigroup Inc required in an earlier rescue effort.
The dollar continued to rally against the euro and European stocks rose.
Earlier on Friday, the United States reported its biggest monthly job loss in 5 1/2 years, more evidence of an approaching recession. Data showed the U.S. services sector holding up.
“The data has been horrible all week long. It absolutely does put pressure on them to get this rescue act passed,” said Fred Dickson, market strategist at D.A. Davidson and Co in Lake Oswego, Oregon. “It’s a bill with risks, but it’s a plan and the market needs a plan.”
Action on the U.S. bailout was of paramount importance, European Central Bank President Jean-Claude Trichet said.
“(U.S. Treasury) Secretary (Henry) Paulson’s plan obviously must be passed,” he told Europe 1 Radio. “It must be. It is necessary.”
On Thursday, House Speaker Nancy Pelosi had said the bailout package would not be brought to the floor without the votes secured to pass it.
Still, some Republicans who opposed it on Monday have said they were not swayed by changes made by the Senate, which approved the bill on Wednesday, and some Democrats said they were put off by those changes.
A collapse in the U.S. housing market and resulting bad mortgages have shattered confidence in the financial sector, with banks across the United States and Europe needing support from governments or outside investors this week.
Interbank lending and credit to businesses and private individuals has all but seized up. Central banks have injected billions of dollars to maintain some flow of funds.
France’s prime minister, whose country is hosting an emergency summit with Italian, British and German leaders on Saturday, said only collective action could solve the financial crisis. He said he would not rule out any solution to stop any bank failing.
“The world is on the edge of the abyss because of an irresponsible system,” Fillon said, alluding to widespread anger over past lax regulation of financial markets and excessive lending.
Fillon said President Nicolas Sarkozy would propose at the emergency meeting measures to unfreeze credit and coordinate economic and monetary strategies.
Bad news mounted in the European financial sector.
In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime-related holdings, said it would cut 2,000 investment banking jobs — on top of the 4,100 positions cut in the past year.
Worries grew that even if Washington agrees on the package, it will not be enough to resolve deeper-rooted weakness. New data showed that a U.S. recession is nearing and Europe’s economy is worsening.
Divisions have emerged within Europe over the past week, with Ireland offering guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks, and Greece promising to safeguard savers’ cash.
EU partners said Ireland’s move could break competition rules and threatened the unity necessary to ensure an ordered approach to turmoil ahead.
By Eddie Evans and Kevin Krolicki
(Additional reporting by Reuters reporters in Paris, Washington, Singapore, Tokyo and Zurich; Editing by Tom Hals)