NEW YORK/WASHINGTON - The U.S. Congress approved a
$700 billion bailout package for U.S. banks as efforts to head off a
spreading global financial crisis hung in the balance.

The U.S. House of Representatives approved the financial
rescue plan by a vote of 263-171. That vote sent the measure to
U.S. President George W. Bush, who quickly signed it into law,
concluding two weeks of haggling in Washington that had roiled
and captivated global markets.
 

Markets pivoted on passage of the bailout, with stocks
drifting from highs and the dollar slipping as the focus began
to shift from the immediate response to the financial crisis to
signs of a gathering recession.
 

"This probably comes a bit too late. If this had been done
earlier, it probably would have had a much bigger impact in
restoring confidence," said Anna Piretti, economist at BNP
Paribas in New York. "Over the past two weeks what we have seen
is an accumulation of weak reports."
 

Earlier, the hobbled financial sector was bolstered as
Wells Fargo & Co stepped in to buy Wachovia Corp.
 

But in signs of the spreading crisis, California said it
was running out of money, France said the world stood on the
"edge of the abyss" and European leaders divided over their
response to the banking sector's difficulties.
 

U.S. Treasury Secretary Henry Paulson, who had been the
administration's chief lobbyist for the plan, said regulators
would get going quickly to implement the emergency power to
start buying up distressed assets from banks.
 

"We have shown the world that the United States of America
will stabilize our financial markets and maintain a leading
role in the global economy," Bush said in a short statement
delivered before cameras outside the White House.
 

The House had shocked world markets on Monday by rejecting
a previous draft. With elections on Nov. 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 on the
House floor 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.
 

Ahead of the vote, U.S. stocks had risen on hopes for the
bailout plan and the deal to buy Wachovia.
 

Wells Fargo, one of the strongest U.S. banks, said it did
not need the government help that Citigroup Inc required in an
earlier effort to rescue Wachovia.
 

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.
 

In California, Gov. Arnold Schwarzenegger warned the U.S.
Treasury that the nation's most populous and richest state
could need need short-term federal loans because it has been
shut out of frozen credit markets.
 

California, a state with an economy on par with Spain's,
warned that its cash reserves could be exhausted by end month,
bringing state services to a grinding halt.
 

"The economic fallout from this national credit crisis
continues to drain state tax coffers," Schwarzenegger said in a
letter to Paulson.
 

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.
 

'ON THE EDGE OF THE ABYSS'
 

French Prime Minister Francois Fillon, 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.
 

In Britain, Prime Minister Gordon Brown shook up his
cabinet and authorities took three separate steps to try to
shore up the financial system.
 

Bad news mounted in the European financial sector.
 

Dutch-Belgian banking and insurance giant Fortis was broken
up on national lines, with the Dutch government taking over its
operations in the Netherlands, after an earlier rescue effort
and asset sale failed.
 

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 in the
global economy.
 

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.