US shares clawed back some of Monday’s heavy losses, after President George W Bush renewed calls for Congress to back a $700bn (£380bn) banking rescue plan.

With Wall Street having seen record falls after Congress blocked the deal, the Dow Jones index rose 345 points or 3.3% by mid-afternoon on Tuesday.

Analysts said investors were hopeful a new deal could be agreed this week.

Mr Bush warned that if agreement is not reached, the US economy faces “painful and lasting damage”.

‘Urgent situation’

“We are in an urgent situation and the consequences will grow worse each day if we do not act,” Mr Bush said at the White House.

“It matters little what path a bill takes to become law. What matters is that we get a law.

“We’re at a critical moment in our economy.”

While the Dow Jones reached 10,711.3 points, the other main Wall Street index – the Nasdaq – had advanced 3.8% to 2,060 points.

On the back of the strong gains, European shares closed ahead.

The UK’s FTSE 100 added 1.7%, 83.4 points to 4,902.5, France’s key index added 2% to 4,032.1 points while Germany’s Dax ended 0.4% higher at 5831 points,.

Earlier, Japan’s Nikkei index ended Tuesday down 4.1%, while Hong Kong’s Hang Seng rose 0.8%.

Oil, which had fallen by about $10 a barrel on Monday, also rallied.

Expectations that politicians would pass some form of financial stability plan gave investors hope that demand for energy would increase.

US light, sweet crude rose by $3.88 to $100.25 a barrel while London Brent crude added $3.63 to $97.61.

‘Not dead’

Analyst Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said European investors were hopeful the US would eventually pass the bail-out plan.

“This deal is not dead in the water and there are hopes that when Congress reconvenes it could still go through,” he said.

There were a number of other key financial events on Tuesday:

– In Russia, trading was temporarily suspended on the country’s two main stock markets
– In the Republic of Ireland, the government announced that all bank deposits would be guaranteed for the next two years
– European bank Dexia has received a state bail-out, costing the Belgian, French and Luxembourg governments a combined 6.4bn euros ($9.2bn; £5bn)
– Several banking stocks fell on the FTSE 100 index, with HBOS down 13.8%, Barclays losing 2% and Royal Bank of Scotland slipping 1.1%
– Day of turmoil

The US rescue plan, a result of tense talks over several days between the government and lawmakers, was rejected by 228 to 205 votes in the House of Representatives.

“I know we need a strong financial sector, but where is the talk of structural change that’s going to prevent recurrence?” Neil, California, US

Send us your commentsAbout two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.

Congress will not meet again until Thursday – after a break for the Jewish New Year – with another vote unlikely before the weekend, the BBC’s Jonathan Beale in Washington says.

The House’s rejection of the bail-out plan came after a day of turmoil in the US and Europe, with Wachovia, the fourth-largest US bank, being bought by larger rival Citigroup.

Monday also saw the partial nationalisation of Benelux banking giant Fortis by three governments, and UK lender Bradford & Bingley was taken into state ownership.

News reported by The BBC

Shares in US mortgage finance giants Freddie Mac and Fannie Mae have plunged again on fears that the government will be forced to bail out the pair.

The slide reignited concerns about the health of the financial sector and sent the US stock market sharply lower.

A report by US financial weekly Barron’s suggested that the chances of a government rescue were increasing.

However, the Treasury said that it had no plans bail out the two firms, which underpin the US mortgage market.

The Treasury gained the authority to bail out the Freddie Mac and Fannie Mae, including buying shares in the two companies if needed, in a rescue plan approved at the end of July.

The degree and depth of what’s happening in the financial industry is beyond anything we’ve seen in decades

John Merrill, Tanglewood Wealth Management

Citing an unidentified source, Barron’s said US officials anticipated that the two firms would not be able to raise the money they needed to improve their financial footing.

The paper said a government bail-out would likely wipe out existing holders of the firms’ shares. Both firms were trading near 18-year lows.

Stocks rattled

Shares of Fannie Mae fell more than 22%, or $1.76, to close at $6.15. Shares of Freddie Mac fell almost 25%, or $1.46, to $4.39.

The Dow Jones Industrial Average fell 180.51, or 1.55%, to 11,479.39 points also rattled by a Wall Street Journal report that suggested that Lehman Brothers’ quarterly earnings might be weaker than expected.

John Merrill, chief investment officer at Tanglewood Wealth Management, said investors were realising that the crisis in the financial sector was unlikely to abate any time soon.

“The degree and depth of what’s happening in the financial industry is beyond anything we’ve seen in decades and it takes time to get your arms around the severity of what’s happening and what the long-term and short-term ramifications are,” he said.

Severe stress

Shares in Freddie and Fannie fell sharply last month on fears that they would run out of money to fund their business, forcing the US government to take radical steps to ease the panic.

The two firms are the backbone of the US mortgage market as almost all US lenders rely on them to buy their mortgages in order to access the funds to lend to consumers.

As mortgage guarantors, they must pay out when homeowners default on their loans.

With the housing market across the US crumbling, their finances have come under severe stress.

News reported by The BBC

Shares in US mortgage finance giants Freddie Mac and Fannie Mae have plunged again on fears that the government will be forced to bail out the pair.

The slide reignited concerns about the health of the financial sector and sent the US stock market sharply lower.

A report by US financial weekly Barron’s suggested that the chances of a government rescue were increasing.

However, the Treasury said that it had no plans bail out the two firms, which underpin the US mortgage market.

The Treasury gained the authority to bail out the Freddie Mac and Fannie Mae, including buying shares in the two companies if needed, in a rescue plan approved at the end of July.

“The degree and depth of what’s happening in the financial industry is beyond anything we’ve seen in decades” John Merrill, Tanglewood Wealth Management

Citing an unidentified source, Barron’s said US officials anticipated that the two firms would not be able to raise the money they needed to improve their financial footing.

The paper said a government bail-out would likely wipe out existing holders of the firms’ shares. Both firms were trading near 18-year lows.

Stocks rattled

Shares of Fannie Mae fell more than 22%, or $1.76, to close at $6.15. Shares of Freddie Mac fell almost 25%, or $1.46, to $4.39.

The Dow Jones Industrial Average fell 180.51, or 1.55%, to 11,479.39 points also rattled by a Wall Street Journal report that suggested that Lehman Brothers’ quarterly earnings might be weaker than expected.

John Merrill, chief investment officer at Tanglewood Wealth Management, said investors were realising that the crisis in the financial sector was unlikely to abate any time soon.

“The degree and depth of what’s happening in the financial industry is beyond anything we’ve seen in decades and it takes time to get your arms around the severity of what’s happening and what the long-term and short-term ramifications are,” he said.

Severe stress

Shares in Freddie and Fannie fell sharply last month on fears that they would run out of money to fund their business, forcing the US government to take radical steps to ease the panic.

The two firms are the backbone of the US mortgage market as almost all US lenders rely on them to buy their mortgages in order to access the funds to lend to consumers.

As mortgage guarantors, they must pay out when homeowners default on their loans.

With the housing market across the US crumbling, their finances have come under severe stress.

News reported by The BBC