The House of Representatives has voted against the $700bn bail-out plan for the US economy - sending

The shock result came as Congress rejected the controversial, taxpayer-funded rescue package by a vote of 228 to 205.

The Dow Jones plunged by more than 7% on the news - just 3% less than an official crash. It closed down 777.68 at 10365.45.

Experts believe the FTSE 100 may well dive in response when London markets open tomorrow.

Today, banks including HBOS, Lloyds TSB and RBS were among the FTSE's biggest fallers. The index plunged 5.3% at 4818.8 - its lowest level since April 2005.

Prime Minister Gordon Brown said: "The vote in America is very disappointing. In recent times we in Britain have taken decisive action to maintain the stability of our system.

"The Governor of the Bank of England, the Chancellor and I will take whatever action necessary to ensure the continued stability for Britain."

As the events unfounded, Sky News presenter Jeremy Thompson said: "We are witnessing perhaps one of the most dramatic economic and financial moments in modern history - on both sides of the Atlantic."

He added: "Now the lawmakers are going away to assess where they go from here."

Democratic and Republican negotiators are continuing private talks in a bid to bring a similar bill for another vote before the House breaks.

The rescue package was seen by the US Treasury as the best way to rescue the US economy from financial meltdown.

But there had been widespread criticism that taxpayers' cash was being risked to prop up banks, who had caused the credit crunch in the first place with their irresponsible lending.

Earlier, President Bush admitted the bill would present a "difficult vote" for members of the US Congress, but urged them to pass it.

Tonight he said he was "very disappointed" that the plan was rejected.

He added: "We've got a big problem...Our strategy is to continue to address this economic situation head-on."

Sky's Robert Nisbet said: "It seems there was an overall fear from Congressmen and women, who were up for election come November, that they didn't want to be seen backing a deeply unpopular measure."

House Republicans blamed a partisan pre-vote speech by Speaker Nancy Pelosi, a Democrat, for the bill's failure.

She told a live news conference afterwards: "The legislation has failed, the crisis has not gone away. We must work in a non-partisan way in order to have another bite at the apple, in terms of some legislation."

Sky News

It is loathed by Main Street, a life raft for Wall Street, and now the House of Representatives is set to take a another crack at a new bailout package that includes a number of new sweeteners, such as tax cuts, to woo its Republican detractors.

But is this a do-or-die doom's day situation? Or will the market survive if left to fend for itself, minus $700 billion?

Wednesday the Senate voted 74-25 for the $700 billion package designed to stabilize America's financial institutions. A few days earlier, a GOP revolt in the House derailed the bailout, but the package is set to return to the House Friday.

"We've sent a clear message to Americans all over that we will not let this economy fail," said Senate Majority Leader Harry Reid, D-Nev. "This is not a piece of legislation for lower Manhattan. This is legislation for all America."

Main Street America initially balked at the plan - perceiving it as rewarding Wall Street's lack of fiscal responsibility - but after a week of dire rhetoric from the White House, Congress, both presidential candidates and the media, it appears the doom's day scenario is sinking in.

Eighty percent of Americans now fear tremors from Wall Street's quake will reach Main Street. Over half feared the economic crisis would cause them to work well into their retirement, and 8 out of 10 worried the federal debt, which stands at $10 trillion, would burden their children.

Opposition to the proposal also receded and only 23 percent said the government was moving "too quickly."

But while some on Main Street are starting to believe the bailout proposal is an economic necessity to maintain the U.S. way of life, there are some in Washington who are resisting the doom's day message.

"The process of this bailout reminds me of a panic-stricken swimmer thrashing in the water only making his situation worse," said. Rep. Ron Paul, R-Texas. Dr. Paul argues the root cause of the current economic crisis is a failed monetary system, and the bailout will only make the situation worse.

"For 37 years, the world built a financial system based on the dollar as the reserve currency of the world in an attempt to make the dollar serve as the new standard of value," Dr. Paul said. "However since 1971, the dollar has had no intrinsic value, as it is not tied to gold. The dollar is simply a fiat currency, which has fluctuated in value on a daily, if not hourly, bias. This worked to some degree until the market realized that too much debt and malinvestment existed and a correction was required."

In 1971, thanks in large part to the debt created by the Vietnam War, the monetary system established by Bretton Woods collapsed. Currency was removed from the gold standard and was attached to a floating currency stream of no intrinsic value.

The breakdown caused currency to become destabilized and, as Dr. Paul contends, set the stage for the current economic meltdown. But to fix the crisis the country must fix its currency, and Dr. Paul argues the bailout does the exact opposite.

"The more money and credit you create out of thin air, the bigger the challenge it will be to the dollar," Dr. Paul said earlier in the week on Fox News. "What they are doing now is creating a situation where every single person in this country is going to suffer with dollar deprecation. That means the savings of every person."

While Dr. Paul readily admits his way of addressing the crisis would create a short-term pinch - he believes there could be a "very serious recession for a year" - he is adamant the bailout alternative is worse.

"Right now they are prolonging what has to be done. Bad assets and bad debt has to be liquidated. But now they are not allowing that to happen. That is what we did in the Depression and that is why it lasted more than a decade," Dr. Paul added.

And as the House gets ready for round two of the bailout, it appears passions surrounding the bill remain firm.

"I will not support this legislation because it's the wrong medicine," Rep. Marcy Kaptur, D-Ohio, said on ABC's "Good Morning America." The Ohio Democrat argued the market should be permitted to fix itself, minus government intervention.


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