NEW YORK (Reuters) - President George W. Bush eased pressure on financial markets Tuesday with assurances that a $700 billion bailout for the financial sector can be revived, but the crisis spread further through European banks.
The dollar rallied and stocks recovered 3 percent after suffering their blackest day in 20 years on Monday as the House of Representatives rejected the rescue plan. The White House, Treasury Secretary Henry Paulson, congressional leaders and the two candidates hoping to succeed Bush as president, Sens. John McCain and Barack Obama, kept up a steady drumbeat of support for the plan, and around the world markets stabilized.
“There’s an overarching belief that at some point this week, whether it’s Wednesday or Thursday, we’ll get something passed by the House,” said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.
But global money markets remained frozen, and London interbank offered rates shot to record levels, indicating banks were not lending to each other. The rate for overnight dollar loans rose to nearly 6.9 percent from just over 2.5 percent on Monday.
Without the bailout plan, which would allow the Treasury to buy toxic mortgage-related assets from banks, credit markets could remain frozen and lead to a recession.
“I assure our citizens and citizens around the world that this is not the end of the legislative process,” Bush said.
From Dublin to Moscow, the financial crisis was an ominous presence.
Ireland unveiled a blanket guarantee for savings held by its banks, and for the second time in a month Russia briefly shut down its stock markets.
France, Belgium and Luxembourg poured 6.4 billion euros into Franco-Belgian bank Dexia to avoid defaults on its loans, and France promised new bank measures to help savers.
Shares of British bank HBOS Plc fell on fears that Lloyds TSB Group Plc could renegotiate a deal to buy HBOS.
Dutch banking and insurance group Fortis and regional U.S. bank Wachovia succumbed on Monday.
Wall Street stocks rose as investors bet the bailout package would be approved by the U.S. Congress this week. The dollar rose against the yen and oil rebounded. European stocks recovered from earlier losses.
The White House said Bush had “constructive” talks with McCain, a Republican, and Obama, a Democrat, on Tuesday. Both presidential candidates have urged their fellow members of Congress to pass the bailout package and called for the limit on bank deposit insurance to be increased to boost confidence in banks.
Sen. Harry Reid and Sen. Mitch McConnell, the top Democrat and Republican in the Senate, promised swift action.
Congress was not in session on Tuesday because of a Jewish holiday. The Senate could take up bailout legislation as early as Wednesday. The House is to return on Thursday.
Lawmakers held discussions with each other and Bush administration officials on Tuesday to explore options, including possible changes in the measure the House defeated.
They could revise the bill or bring it up for another House vote. The next vote could occur in the Senate, where there has been more bipartisan support for the plan.
Monday’s defeat in the House was driven by a collection of Republicans and Democrats -- many of whom are in tight re-election races -- who received angry calls and e-mails from constituents upset at the idea of bailing out Wall Street.
Additional reporting by Ellis Mnyandu in New York, Donna Smith and Thomas Ferraro in Washington, Jamie McGeever in London, and James Mackenzie and Tim Hepher in Paris; Editing by John Wallace