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By Eddie Evans and Kevin Krolicki
NEW YORK/WASHINGTON, Oct 2 (Reuters) - Shockwaves from the global credit crisis spread on Thursday, rattling industries around the world and raising the stakes for the U.S. Congress to finish up a $700 billion bank bailout.
U.S. economic data amplified warnings that a recession is near, and European Central Bank President Jean-Claude Trichet said Europe's economy was weakening, opening the door for the first interest rate cut there in five years.
Business leaders from hoteliers to automakers warned that a crisis that began with risky lending to the overheated U.S. housing market was on the cusp of a dangerous new phase.
"There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical," Marriott International Inc Chief Financial Officer Arne Sorenson said in urging Congress to pass the bailout.
Backers of the rescue plan, including U.S. Treasury Secretary Henry Paulson, called on members of the House of Representatives who voted down a similar measure on Monday to change their vote. After the shock rejection of the plan, the Senate passed a sweetened version on Wednesday night and the House is expected to vote again on Friday.
Investors around the globe scurried for safety, betting that locked-down credit markets would start to shut down global economic growth.
Latin American currencies tumbled and stocks sank, led by a nearly 8 percent drop in Brazil's benchmark stock index, as concern grew that the U.S rescue package would be too little and too late to head off a deeper downturn.
U.S. stocks dropped 4 percent, while U.S. and euro-zone government bonds drove higher in a renewed safe-haven rally.
Oil prices fell more than $4 a barrel on the expected slowdown, and the dollar rose to a year high against the euro on the speculation of a rate cut by the ECB.
At the center of the storm, credit markets remained under deep stress. With banks fearful of lending to each other, direct bank borrowing from the U.S. Federal Reserve shot to a record high, averaging a staggering $368 billion per day.
The U.S. commercial paper market also contracted for the third straight week as business lending effectively shut down.
U.S. AIMS TO PUT HOUSE IN ORDER
House Speaker Nancy Pelosi, a California Democrat, said congressional leaders were scouring for votes to pass the bailout bill -- and cautioned that there was probably not time to change the version passed by the Senate late Wednesday.
"We're not going to take a bill to the floor that doesn't have the votes. I'm optimistic that we will take a bill to the floor," Pelosi told reporters.
Meanwhile, a group of renegade Republicans, including 20 who voted no the first time, said they would seek to slash the amount authorized in the plan from $700 billion to $250 billion.
As the brinkmanship played out in Washington, new data underscored the growing threat to the world's largest economy.
U.S. factory orders tumbled in August and the number of workers seeking jobless benefits rose in the latest week to a seven-year high.
"The economy is turning down pretty fast at this point," said Nigel Gault, U.S. economic research director at Global Insight.
Even if the bailout passes Congress, some skeptics have begun to question whether the measure can stop more housing-related dominoes from toppling in the United States.
"There are almost 10,000 foreclosures a day now, and between 1 and 2 million adjustable rate mortgages are due to adjust upward in the next year," said Timothy Canova, a monetary policy expert at Chapman University School of Law. "Without help for the bottom of the pyramid, Wall Street will be back next year asking for another trillion dollars."
In a sign of how the credit crisis has hit even the bluest of the blue chips, shares of General Electric Co tumbled to a five-and-a-half-year low. The bellwether, involved in businesses from turbines to television, failed to soothe market concerns with sale of $15 billion in new stock to investors including Warren Buffett.
Automakers including General Motors Corp and Ford Motor Co warned of tougher times, as evaporating credit raises the risk of deeper production cuts and job losses for a struggling industry.
"The problems of subprime and credit crunch are now all over the world," Ford Chief Executive Alan Mulally said. "The downturn is longer and deeper than we foresaw a year ago."
AFTER THE UNCERTAINTY: MORE UNCERTAINTY
The U.S. bailout plan, equivalent to some $2,300 per American, has been aimed intended to reinvigorate credit markets that have stopped trading as financial institutions, staggered by failed mortgages, focused on preserving capital.
A group of House Republicans led opposition to the bill on Monday over criticism it put the government at the center of a problem that capital markets had created and could still fix.
Many Americans also opposed the $700 billion rescue plan because of objections across the political divide, including criticism that it would bail out powerful bankers without doing enough to help families struggling to hang on to their homes.
The Senate added tax cuts for families and businesses and an increase in bank deposit insurance in a bid to win broader support for the bill. Monday's House vote was 228-205, requiring a net gain of 12 votes for it to pass.
Rep. Steny Hoyer, the House Democratic leader, said calls from voters had been running 6-1 against the bill before Monday's failed vote but were now closer to 3-1 against.
Under the deal, the Treasury would buy illiquid assets held by financial institutions, in the hope of restoring confidence and thawing credit markets vital to the wider economy.
The crisis has become the biggest issue in U.S. elections, now just over a month away. Both presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, voted for the package. (Additional reporting by Reuters reporters in New York, Washington, London, Paris, Brussels, Hong Kong and Tokyo; Editing by Tom Hals, Gary Hill)
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