Talks in Washington have so far failed to reach agreement on a massive $700bn (£380bn) government proposal to bail out the troubled US finance sector.
Talks to agree a huge $700bn (£380bn) bail-out of the US financial industry have ended in a "shouting match".
After several hours of talks with President George W Bush, Republican members of Congress remained sceptical.
After several hours of discussions with President George W Bush, a group of Republican members of Congress blocked the government plan.
The proposal would see the government buy bad debts from US banks.
The proposal would have seen the government buy bad debts from US banks.
There are fears that without a swift rescue package more finance companies will collapse, choking the flow of funds to the economy.
Without a swift rescue package more finance companies are expected to collapse, causing more serious damage to the global economy.
Bank failure
Financial markets are gummed up because banks do not know exactly how much bad debt they hold and are therefore reluctant to lend to businesses, consumers and each other.
Congressional leaders are to meet again on Friday morning to try to hammer out an agreement.
The fall-out of this credit crunch continues to make a huge impact:
For House Republicans to take a walk is just appalling Barney FrankDemocratic Representative
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The
United States suffered its largest bank failure yet, when regulators moved in to close down Washington Mutual and then sold it to US rival JP Morgan Chase for $1.9bn
In
a co-ordinated move the European Central Bank, the US Federal Reserve, the Bank of England, Bank of Japan and the Swiss National Bank announced new short-term loans to the banking sector worth tens of billions of dollars
Banks
continued to cut costs, with UK banking giant HSBC saying it would axe 1,100 jobs
Shares
in UK bank Bradford & Bingley fell another 20% to 17 pence
Democrat and Republican legislators seemed to have struck a deal earlier on Thursday, before senior members of Congress met Mr Bush at the White House.
'Full throated discussion'
The agreement unravelled over fears among some Republicans over the cost of the proposal, and concern that it would involve the government too much in the financial sector.
Meanwhile, JPMorgan Chase has announced that it will take over the ailing Washington Mutual at a cost of $1.9bn.
On Thursday, Democrat and Republican legislators appeared to have struck a deal.
Washington Mutual, one of the largest savings and loan institution in the US, has seen its share price drop by more than 80% this year, after suffering considerable losses due to failed mortgages.
A group of Democrats and Republicans even made a public statement, with Senator Christopher Dodd, chairman of the Senate Banking Committee, announcing that they had reached "fundamental agreement" on the principles of a bail-out plan.
It had been closed down by federal regulators, after it lost $16.7bn in the past 10 days.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," said the Office of Thrift Supervision.
'Bad plan'
Emerging from the talks at the White House, legislators said more work was needed on the Bush administration proposal to help get bad debt off the books of finance firms - a situation that has triggered a global credit crisis.
Members of Congress were "working on it," said a spokesman for Senate Democratic Majority Leader Harry Reid after the talks.
"Still have a lot of issues to be worked on. Making progress. A lot more to discuss," said the spokesman, Jim Manley.
After the talks with President Bush, a leading Democratic senator said it could take beyond Friday's original target date to finish work on the plan before it can go to a vote in Congress.
Earlier, Senator Christopher Dodd, chairman of the Senate Banking Committee, had said they had reached "fundamental agreement" on the principles of a deal.
But after the White House meeting, the top Republican on the committee, Richard Shelby, told reporters: "I don't believe we have an agreement."
But after the White House meeting, the top Republican on the committee, Richard Shelby, told reporters: "I don't believe we have an agreement."
Senator Obama spoke of progress being made "on all fronts"
The intense discussions reportedly saw US Treasury Secretary Henry Paulson literally down on one knee, begging Nancy Pelosi, the leader of the Democrats in the House of Representatives, to help push through the bail-out package.
He pointed to a letter from leading economists saying the Paulson plan was a "bad plan" and that alternatives should be looked at.
One such alternative has been put forward by a group of conservative Republicans in the House of Representatives that would offer insurance to companies that hold some of the bad assets - instead of the government buying them.
However, the agreement unravelled when a group of Republican legislators objected to the principle of the plan.
The talks at the White House, led by Mr Paulson and US President George W Bush, then descended into what one participant described as "a full-throated discussion".
Officials with the campaign team of Republican presidential candidate John McCain spoke of "a contentious shouting match".
Congressional leaders are to meet again on Friday morning to try to hammer out an agreement.
The Republican critics of the bail-out plan worry about both its cost and how it would involve the government in the financial sector. Instead, they want a government-backed insurance policy for the huge amounts of bad debt built up by US banks.
This proposal, however, was described as "unworkable" both by Democrat politicians and some US government officials.
Doubts over presidential debate
Some Democrats were scathing about the lack of support for the Paulson plan.
Some Democrats were scathing about the lack of support for the Paulson plan.
Christopher Dodd on the bail-out
"For House Republicans to take a walk is just appalling," said Democrat Barney Frank.
"For House Republicans to take a walk is just appalling," said Democrat Barney Frank.
"Secretary Paulson has told us several times that the number one plank of the House Republican plan, an insurance scheme, will not work," Mr Frank added.
"Secretary Paulson has told us several times that the number one plank of the House Republican plan, an insurance scheme, will not work," Mr Frank added.
The bail-out plan, as it was first proposed last week, would broadly help relieve finance firms of their "toxic" bad debt which is in the form of complex financial instruments backed by sub-prime mortgages that many holders can no longer pay off.
The breakdown of talks has put a huge question mark over the first debate in the presidential election campaign in the US.
Details of the Bush administration proposal were not immediately available but it is tipped to include restrictions on executives' pay as well as oversight requirements.
Democrat candidate Barack Obama and Mr McCain were supposed to meet in Oxford, Mississippi.
While the benchmark Dow Jones index rose after Senator Dodd's initial comments, to close 198.09 points, or 1.83%, up at 11,023.26, there were fears that markets would react negatively to the fresh uncertainty when they opened on Friday.
But Mr McCain said he wanted to pull out and focus on getting a bailout plan agreed instead. Democrats accused him of posturing and avoiding telling voters how he would solve the crisis.
Accusations
Bank failure
Presidential candidates Barack Obama and John McCain interrupted their campaigning to go to Washington for the talks.
As the credit crunch continues to bite, regulators moved in and shut down Washington Mutual (WaMu), one of the largest savings and loan institutions in the US. Depositors had withdrawn $16.7bn from the bank during the past 10 days alone.
The pair are due to hold a presidential campaign debate on Friday, which Mr McCain earlier said should be called off because of the pressing financial crisis.
They immediately sold on the bank to banking giant JPMorgan Chase for $1.9bn.
However, on Thursday evening Mr McCain's campaign team said the Republican senator had not yet decided whether to attend the debate in Oxford, Mississippi.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," said the Office of Thrift Supervision.
Speaking after the White House talks, Mr Obama said he expected to "eventually" get Congressional agreement on the government's bail-out proposal, but that there was still work to do.
WaMu had seen its share price drop by more than 80% this year, after suffering considerable losses due to failed mortgages. Earlier this year JPMorgan Chase also bought investment bank Bear Stearns when it faced collapse.
He blamed the financial troubles on "reckless behaviour" on Wall Street and a lack of oversight because regulators were "asleep at the switch".
Concerns
Mr McCain had earlier said he was suspending his election campaigning to help deal with the financial crisis.
His move raised criticisms of political posturing.
"The concern that I have... is that when you start injecting presidential politics into delicate negotiations, then you can actually create more problems rather than less," Mr Obama told a news conference.
The bail-out has been under scrutiny with politicians on both sides nervous about the deal being rushed through too quickly.
Of particular concern has been the issue of pay for the bosses of the firms in question, as well as concerns over the cost of the plan to the US taxpayer.
But both US Federal Reserve head Ben Bernanke and Mr Bush have warned that the lack of a deal would cause a significant set-back to the economy as a whole.
