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US rescue plan faces test in House after Senate approval

Thursday 2nd October 2008

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The US$700 billion rescue package, salvaged and reworked after defeat by the Congress this week, heads back to the House for a second time after being approved by the Senate.

The new version includes provisions designed to ease its passage in the House of Representatives. They include raising the limit on federal bank deposit insurance, stamping down on asset-valuing rules, tax breaks for alternative energy and the extension of exemptions to the so-called alternative minimum tax.

Senators voted 74-25 to approve the package that allows the Treasury to buy toxic, mortgage-related assets from financial institutions.

"The bill the Senate passed is essential to the financial security of every American," President George Bush said in a statement. "The American people expect - and our economy demands - that the House pass this good bill this week and send it to my desk."

Stocks on Wall Street, and around the globe, plunged after the first version of the plan was rejected, sending the Dow Jones Industrial Average to a record drop.

Supporters of the rescue said the market reaction highlighted the frailty of financial markets and the risks if measures aren't taken to restore liquidity. It had "a chilling effect" on lawmakers, House Republican Leader John Boehner was reported as saying.

The dollar strengthened after the Senate's decision, to $1.3950 per euro from $1.4009 yesterday in New York.

Still, the decision wasn't enough to lift stock markets in Asia amid concern the bailout won't stem weakness in the global economy. Japan's Nikkei 225 fell 1.1% while Australia's S&P 200 fell about 0.7%.

By Jonathan Underhill



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