Wall Street still nervous after U.S. Senate passes rescue package

All three major indexes fell more than 2 percent as the negative data added to anxiety about the fate of a $700 billion financial-sector rescue plan.

The Senate passed a revised plan on Wednesday, two days after the House rejected the initial version and triggered the biggest slide in U.S. stocks in more than two decades. A second House vote was expected on Friday.

The Dow Jones industrial average was down 2.13 percent as the Standard & Poor's 500 Index was down 2.44 percent and the Nasdaq Composite Index was down 2.31 percent.

The market remained skittish about the widening global banking crisis even after the Senate approved a financial rescue package with some additional tax breaks and additions and sent it back to the House of Representatives, which rejected a similar measure Monday.

"Despite the fact that it passed overwhelmingly in the Senate, its passage isn't guaranteed in the House," John Wilson, equity strategist at Morgan Keegan, told AFP.

"I would expect the financial markets to breathe a sigh of relief when the (the bill) passes, but I don’t expect the clouds to part and a host of angels to appear in the heavens singing hallelujahs. It will be a start, but there is a lot to work through and a lot that is unknown."

The legislation, approved on a 74-25 vote, authorizes the government to buy troubled assets from financial institutions rocked by record home foreclosures.

PLAN IS NOT A CURE-ALL

It contains two provisions favored by House Republicans: One raises the limit on federal bank-deposit insurance; the other reiterates the authority of securities regulators to suspend asset-valuing rules that corporate executives blame for fueling the crisis.

The revised legislation is aimed at reinvigorating worldwide credit markets and interbank lending that froze while overleveraged financial institutions staggered under the weight of failed mortgages.

But market participants warned that the rescue package is not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.

European stocks responded positively to the passing of the bill, while Asian stocks fell on fears of recession.  Stocks in Asia were lower on Thursday on recession fears, treasuries rose and the dollar gave up early gains.

However, European stocks trimmed gains on Thursday as U.S. shares fell, the FTSEurofirst 300 index of top European shares was up 0.2 percent, after having gained 1.6 percent earlier.

"Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize," Masamichi Adachi, senior economist at JPMorgan in Tokyo told Reuters.

"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown."

The Senate also sweetened the measure for Republicans by authorizing the government's purchase of troubled assets with a $149 billion package of tax breaks. They would spare 24 million households from a $62 billion alternative minimum tax and extend $17 billion in benefits to companies that produce alternative energy.

HOUSE PASSAGE SEEN MORE LIKELY
Leaders in the U.S. House of Representatives expressed cautious optimism that the legislation would be approved.

Senate leaders hope that sweetening the plan with a tax cut and extended federal protection for bank deposits can turn "no" voters into supporters. On Monday, the House rejected the previous version of the plan with a 228-205 vote.

"It's still uncertain. I think it is likelier to pass than before," House Financial Services Committee Chairman Barney Frank said in an interview on CNN.

"The main change is reality. I think that it's not possible now to scoff at the predictions of doom if we don't do anything," the Massachusetts Democrat added.

Many Americans resent the idea that Wall Street is being "bailed out" at taxpayer expense, and have made their views clear in emails and calls to Washington, putting pressure in particular, on vulnerable members of the House.

All 435 House seats will be contested in the election on Nov. 4, as opposed to 35 seats up for grabs in the Senate.

Treasury Secretary Henry Paulson, whose original three-page proposal grew to hundreds of pages when Congress got involved, urged the House to act swiftly to ratify it.

Should the House uphold the bill, it would go to the White House for signature into law by President Bush.

"This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going," Paulson said.