The Fed said the U.S. commercial paper market contracted for the third straight week, as business lending and borrowing effectively shut down.

President Bush, his authority eroded by the approaching end of his term in office, welcomed Senate passage of the package on Wednesday and urged the House to do the same, quickly.

"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said in a written statement.

Senate leaders hope that sweetening the plan with a tax cut and extended federal protection for bank deposits can turn "no" voters in the House into supporters. On Monday, the House rejected the previous version of the plan by 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 e-mails and calls to Washington, putting pressure in particular on vulnerable members of the House.

The crisis has become the biggest issue in forthcoming U.S. elections. Both presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, voted for the package. Obama, echoing Republican Bush's warnings, said the bailout was vital to "prevent a crisis turning into a catastrophe."

All 435 House seats will be contested in the election on Nov. 4. Thirty-five seats are up for grabs in the Senate.

Switzerland's UBS AG, which has written off more than any other European bank this year because of exposure to U.S. 'toxic' assets, offered some good news for markets, announcing it would make a small profit in the third quarter.

But Britain's Nationwide building society said house prices in August tumbled 12.4 percent from a year earlier, their biggest annual drop since records began in 1991, as higher interbank lending rates fed into a sharp increase in mortgage rates.

The country's biggest retail chain Marks and Spencer posted a 6 percent drop in second-quarter core sales and said it was cutting investment.

U.S. 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 approve the bill, it would go to Bush to be signed into law.

"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.

A report in the Wall Street Journal said U.S. Federal Reserve officials are weighing cutting interest rates, even if Congress approves the bailout.

The tally for all the various rescue measures launched by U.S. authorities this year runs to about US$1.8 trillion -- more than the total economic output of both Canada and Spain last year. (Additional reporting by Reuters reporters in New York, London, Paris, Brussels, Hong Kong and Tokyo; Editing by Tom Hals)



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