The House approved the financial rescue plan by a vote of 263-171 and it was quickly signed into law by President Bush. The action ended two weeks of high-stakes haggling in Washington that had roiled global markets.

Stocks, which rallied before passage of the bailout, immediately reversed course as investors focused on the economy and credit crisis. The market ended up with its worst week in seven years.

"The markets are still paralyzed," Loomis Sayles' Dan Fuss, one of the most widely followed U.S. bond managers, said after the vote. "We need confidence back in these markets and that really takes time."

In a sign of the spreading crisis, California said it was running out of money, France said the world stood on the "edge of the abyss" and European leaders divided over their response to the banking sector's difficulties.

Earlier Friday, the US reported its biggest monthly job loss in 5 1/2 years, coming on top of a pile of economic data pointing to an approaching recession. Data showed the U.S. services sector holding up.

Treasury Secretary Henry Paulson, who had been the administration's chief lobbyist for the plan, said he would move quickly to tap the emergency power to buy up distressed assets from banks.

At its core, the bill gives the Treasury Department $700 billion to purchase bad mortage-related securities that are weighing down the balance sheets of institutions that hold them.

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The flow of credit in the U.S. economy has slowed, in some cases drying up, threatening the ability of businesses to conduct routine operations or expand, and adversely affecting consumers seeking financing for mortgages, cars and student loans. Some state governments have also experienced difficulty borrowing money.

Analysts cautioned it was still unclear whether the U.S. plan would work as advertised.

"There are more questions than answers out there still," said David Kelly, chief market strategist of JPMorgan Asset Management. "Will the Treasury be able to get the banks to participate? And the second question is, even if the banks do participate, how willing will they be to make new loans into the economy if they can get rid of the bad ones?"

The U.S. government has run up a charge of $1 trillion in recent weeks as it rushed to stabilize banks, including the earlier seizures of Fannie Mae and Freddie Mac, ratings agency Fitch Ratings said. That cost is equal to over 7 percent of the value of the world's largest economy, it said.

Earlier Friday, the hobbled financial sector was bolstered as Wells Fargo stepped in to buy Wachovia in a deal that would take the place of a shotgun merger with Citigroup brokered by U.S. banking regulators.

But in signs of the spreading crisis, California said it was running out of money, France said the world stood on the "edge of the abyss" and European leaders divided over their response to the banking sector's difficulties.

The House had shocked world markets on Monday by rejecting a previous draft. With elections on Nov. 4, lawmakers from both parties were wary of voter backlash in asking taxpayers to pay for Wall Street's mistakes.

On Friday, speaker after speaker from both parties on the House floor said rejecting the bailout could have devastating consequences for an already slowing U.S. economy, arguing the bill was as important for small businesses, homeowners, students and pensioners as it was for the financial sector.

"While the focus has been on the Dow Jones and Wall Street, we are addressing the real pain felt by Mr. and Mrs. Jones on Main Street," said House Speaker Nancy Pelosi, a California Democrat.

—AP and Reuters contributed to this report.