The United States Senate approved a $US700 billion bailout of the financial industry on Wednesday that political and financial leaders called crucial to averting economic catastrophe.
The bill is aimed at reinvigorating worldwide credit markets and interbank lending that had frozen up while over-leveraged financial institutions staggered under the weight of failed mortgages.
Amid warnings that failure to act could plunge the US into a depression, the Senate voted 74 to 25 in favor, sending the measure to the House of Representatives, probably for a vote on Friday.
The legislation, which will allow the Treasury to buy toxic mortgage-related assets from Wall Street banks, has been the main hope for government action to unlock credit markets and head off a deeper economic downturn in the US and elsewhere.
However, the Senate vote has left markets in an uneasy calm.
Investors are playing a waiting game until they know the final outcome of the American political drama that is being played out over the revised bank bailout package.
The New Zealand share market barely reacted to news of the bailout, with the benchmark index ending the day just 1% higher. Local brokers say it was expected that the package would be passed by the Senate.
The Australian benchmark index was 0.7% lower as many investors sat on the sidelines, waiting to see if the bailout plan would become law.
Japanese share prices closed down 1.88% on Thursday, hitting a three-year low on worries about the financial crisis.
In Europe, share markets in London, Frankfurt and Paris were treading water in early trade on Thursday. The key problem is borrowing rates in the markets for lending between banks remain abnormally high.
Sweetners to bill
Attention now shifts to the lower House of Representatives, which had rejected a similar measure on Monday, sending global markets into a tailspin.
In response, congressional leaders added two sweeteners to the bill - a tax cut and extended federal protection for bank deposits - that could turn "no" voters into supporters.
The changes involve lifting the government's guarantee on savings from $US100,000 to $US250,000 and a package of targeted tax breaks. They are designed to answer critics who felt the original plan was weighted too much in favour of Wall Street while not enough was being done to help struggling American families.
US President George W Bush praised Senate passage of the package on Wednesday and urged the House to quickly do the same.
"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation. The bill the Senate passed is essential to the financial security of every American."
Pressure on House
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 of Representatives.
All 435 House seats will be contested in the election on 4 November, as opposed to 35 seats up for grabs in the Senate.
The House is now more likely to approve the package, a key member said after the Senate vote.
"It's still uncertain. I think it is likelier to pass than before," House Financial Services Committee Chairman Barney Frank said. "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."
Should the House uphold the bill, it would go to the White House for signature into law by Mr Bush.
