Wall Street looked set to plunge on Monday, taking its cue from Asian and European stocks markets, as Congress is expected to vote on a bailout package but fears engulf world markets.
Doubts about the health of the world financial sector are increasing as two European banks were nationalized in two days and central banks threw money at banks trying to persuade them to lend to each other.
In Britain, mortgage lender Bradford & Bingley became the second British bank to be taken under the government's wing since the crisis began last year.
Fortis is the first major euro zone bank to buckle under the financial turmoil triggered in August last year by U.S. mortgage defaults, and an early relief rally in markets at news of progress in Washington soon fizzled out.
And shares in French bank Dexia tumbled more than 20 percent on a newspaper report that it might launch an emergency capital increase.
As investors hope a $700 billion bailout package will save the U.S. banking sector, House Republicans are seen as the main sticking point to the passage of the bill, balking at spending so much public money just before elections in November.
But senior Republican Sen. Judd Gregg of New Hampshire threw his weight behind the deal, saying he expected the House to vote on the bill on Monday.
Congressional leaders from both parties emerged early on Sunday with a tentative agreement that altered key parts of a Wall Street bailout program initially proposed by the Bush administration.
The proposed legislation would disburse the $700 billion in stages. The first $250 billion would be issued when the legislation is enacted, while another $100 billion could be spent if the president decided it was needed. The remaining $350 billion would be subject to congressional review.
Also in the financial sector, Citigroup [C 20.15 0.74 (+3.81%) ] and Wells Fargo [WFC 37.31 3.19 (+9.35%) ] were locked in a bidding war over a possible emergency takeover of Wachovia [WB 10.00 -3.70 (-27.01%) ], according to a report in the New York Times, which quoted people involved in the talks.
Later on Monday, hedge-fund managers will have to disclose their short positions to regulators, a move set to give a rare public glimpse into their secretive trading strategies two weeks later.
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