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Markets unsteady as rescue plan hangs in balance

A $700 billion government-backed rescue plan hangs in the balance amid political bickering in Washington. Some major financial institutions at the heart of the crisis are under FBI investigation for possibly misleading investors.

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World stock markets were unsettled Wednesday, with Wall Street posting slight gains at the opening and Europe in decline, as a US government-backed financial rescue plan was mired in political bickering in Washington.

Wall Street's Dow Jones Industrial Average advanced by just 0.14 percent to 10,868.98 in opening trade, as the rescue package worth 700 billion dollars was being debated in Congress for a second straight day.

US lawmakers were digging in their heels Wednesday against the bailout, setting the scene for a fierce showdown on Capitol Hill watched anxiously by markets around the globe.

"Thus far, the market has been duly unimpressed with the hearings. It hasn't liked the manner in which the Treasury secretary and Fed chairman have been selling the plan nor the manner in which Congressional leaders are negotiating to get a plan passed," said Patrick O'Hare, analyst at Briefing.com.

"The prevailing sense now with respect to the plan is one of uncertainty, and that uncertainty has been behind this week's selling interest."

A vote of confidence in Wall Street from US tycoon Warren Buffett helped offset market uncertainty. Buffett's Berkshire Hathaway said it was investing five billion dollars (3.4 billion euros) in beleaguered US bank Goldman Sachs.

"Warren Buffett has announced a five billion dollar investment in Goldman Sachs in light of the company's more conservative approach going forward, in turn helping lift sentiment," added CMC Markets dealer Matt Buckland.

Europe's main markets drifted lower in subdued late afternoon trade, reversing earlier gains.

London's FTSE 100 index of leading shares eased 0.37 percent to 5,117.05 points. Frankfurt's DAX 30 slid 0.25 percent to 6,053.19 points and in Paris the CAC 40 dipped 0.36 percent to 4,124.80.

Investors remained jittery after US lawmakers had Tuesday refused to pass the government rescue plan unless amendments were made.

"We continue to bounce from boom to gloom to boom to gloom," said Richard Herring, director at Australia's Burrell Stockbroking.

On Wednesday, Japan's Nikkei reversed early losses to close up 0.20 percent, Sydney picked up 1.2 percent and Hong Kong shares won 0.50 percent. Taiwan closed down 0.80 percent.

US stocks took another hit on Tuesday as the Dow Jones lost 1.5 percent.

"A capital injection for Goldman Sachs and the extension of dollar swap agreements between the Federal Reserve and other central banks around the  world have helped calm financial markets that remain very fragile," said Derek Halpenny at the Bank of Tokyo-Mitsubishi.

The European Central Bank and Bank of England on Wednesday made an additional 80 billion dollars available to financial institutions on a short-term loan basis amid a global squeeze on credit.

European central banks and the US Federal Reserve have established a currency swap to provide commercial banks with access to dollars in a bid to calm tension fuelled by the turmoil in the US banking sector.

The US proposal to draw a line under the current financial crisis with a radical 700-billion-dollar taxpayer-funded bailout faced uncertainty as the head of the Senate Banking Committee said the plan could not be approved in its present form.

"What they have sent to us, this is not acceptable," Senator Christopher Dodd had said on Tuesday. "This is not going to work."

The proposal would give the government wide berth to purchase the piles of bad mortgage-related debt -- so-called subprime loans to people with shaky credit -- that sparked the current crisis more than one year ago.

But with US presidential elections less than two months away and distrust of Wall Street running high, lawmakers were wary of handing taxpayers such an enormous bill -- or appearing to reward bank executives for the debacle.

US President George W. Bush, speaking at the United Nations, vowed that the United States would approve the country's largest financial bailout since the 1930s Great Depression.

US Treasury Secretary Henry Paulson said that if Congress did not act quickly, a credit crisis could threaten "all parts of our economy."

With opposition to the bailout rippling through the halls of Congress, reports said some of the major financial institutions at the heart of the crisis were now under FBI investigation for possibly misleading investors.

FBI Director Robert Mueller said last week that the bureau was probing 24 financial institutions, but gave no details other than to describe them as "large corporations" that may face allegations of misstated assets.

US and British media said the firms include mortgage giants Fannie Mae and Freddie Mac and insurer AIG, which have been taken over by the government in the midst of the current crisis.

 

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