U.S. Congress races to reach bailout deal before Monday

The U.S. Congress raced to strike a deal on a proposed $700 billion bailout of the financial industry in an intense weekend negotiating session aimed at alleviating the worst financial crisis since the Great Depression.

Pressed to act before Asian markets open on Monday, negotiators vowed to lock themselves in a room until they reach an agreement on buying distressed debt from financial institutions staggering under the weight of failed mortgages.

Negotiators worked through the night and into Saturday after much of the country paused to watch Friday's first debate between the presidential candidates, Democrat Barack Obama and Republican John McCain.

ew Hampshire Sen. Judd Gregg, chief negotiator for Senate Republicans, told reporters there would be a meeting with principal lawmakers later on Saturday.

"The basic understanding is when we get in that room as principals, we're going to stay there until we reach an agreement or can't reach an agreement -- which hopefully won't happen," Gregg said.

"We will stay until we've done something that addresses this issue in a very comprehensive and effective way."

Senate Republican leader Mitch McConnell of Kentucky said "time is not our ally" and set a goal of holding a vote on a Monday.

Senate Democratic leader Harry Reid pushed a deadline for an agreement of 6 p.m. (2200 GMT) on Sunday "because that's when the Asian markets open."

President George W. Bush said he was confident the legislation being negotiated would be passed "very soon" and that there was "widespread agreement" on major principles.

Pressure to reach a deal was intense after last week's white-knuckle ride on the financial markets in which some big, heavily indebted banks teetered, collapsed or refused to lend money to each other at low rates of interest despite massive central bank liquidity injections.

Meanwhile, further signs pointed to a recession with unemployment up, orders for durable goods down, and housing starts plunging to 17-year lows.

In the latest chapter in the transformation of Wall Street, regulators seized savings and loan Washington Mutual Inc on Thursday in the biggest bank failure in U.S. history, selling its assets to JPMorgan Chase & Co.

FEARS OF CONTAGION

Investors fretted about contagion into Europe, where Belgian-Dutch financial group Fortis NV fired its interim chief executive after liquidity concerns pushed shares down more than 20 percent to a 14-year low.

IMF Managing Director Dominique Strauss-Kahn warned that the world faced a serious, long-lasting slowdown because of the crisis.

At the U.S. Capitol, The lead negotiator for the House Republicans indicated they stood firmly against a Democratic plan to recoup funds that the Treasury may recover from flipping the debt or holding it until maturity and using that to fund affordable housing.