NEW YORK (Reuters) - Pressure mounted on U.S. lawmakers to agree on a $700 billion financial rescue plan after the collapse of talks in acrimony and the biggest bank closure in U.S. history roiled global markets.

House Financial Services Committee Chairman Barney Frank (D-MA) (2nd L) talks to reporters after a meeting with other Congressional finance leaders to discuss the economic bailout plan in the Capitol in Washington September 25, 2008. From left are Representative Spencer Bachus (R-AL), Frank, Senator Chris Dodd (D-CT) and Senator Jack Reed (D-RI). REUTERS/Kevin Lamarque

President George W. Bush acknowledged that there were disagreements but expressed optimism that Congress and the White House would come together on the proposal to rescue the U.S. financial system.

But as negotiations deteriorated into clashes between Republicans and Democrats in Washington, and as Treasury Secretary Henry Paulson met with lawmakers, turmoil in global financial markets deepened.

U.S. regulators seized bank Washington Mutual Inc Thursday, the biggest bank failure in the nation's history, and sold its assets to JPMorgan Chase & Co JPM.N. In Europe, Belgian-Dutch financial group Fortis NV FOR.BRFOR.AS denied it had a liquidity problem after its shares tumbled more than 20 percent to a 14-year low.

Banks worldwide hoarded cash and showed a growing reluctance to lend, driving rates that institutions charge to each other on loans to a record high in London.

Wachovia Corp WB.N, the sixth-largest U.S. bank, saw its stock price tumble 20 percent, while National City Corp NCC.N, a Midwest regional bank, skidded 22 percent. America's banking industry confronts a rising tide of home foreclosures and loan defaults that has spawned the worst financial crisis since the Great Depression.

“What you’re going to see is the strong stronger, and the weak are going to die off,” said William Smith, president of Smith Asset Management in New York.

Global money markets dried up, forcing increased injections of cash from central banks. And with no relief in sight, investors flocked to the safety of cash and U.S. government securities.

“The consequences of this turmoil on real economic performance entail clear downside risk,” St. Louis Federal Reserve President James Bullard said in remarks prepared for delivery to a conference in Tennessee.

Adding to the anxiety, new data showed U.S. economic growth was weaker than previously thought in the second quarter, and a survey showed U.S. consumer confidence began to nosedive in September.

Citing the crisis, Europe's biggest bank, HSBC Holdings Plc HSBA.L, said it was cutting 1,100 jobs, adding to more than 80,000 job losses across the banking landscape in the past 18 months.

U.S. stocks declined, following losses in Asia and Europe.

“The markets are just caught like a deer in the headlights, watching Washington, trying to figure out what the next step is,” said Boris Schlossberg, director of currency research at GFT Forex in New York.

The crisis reverberated in the world's ports, leaving cargo stranded on docks, as banks cease lending and slow global trade, the top executive of a Greek shipping company Excel Maritime Carriers Ltd EXM.N said.

Gold prices jumped more than 4 percent as investors sought safety in bullion. The precious metal is up about 20 percent since September 11, when investment banking titan Lehman Brothers Holdings Inc's LEHMQ.PK stock price collapsed, raising questions about the global banking system.

QUESTIONS SURROUND BAILOUT

The bailout, which would be the largest of its kind in U.S. history, aims to remove soured assets from the books of fragile banks and thus revive frozen credit markets. The value of the assets, mostly mortgage-related, tumbled as the U.S. housing market slumped.

The $700 billion price tag on the bailout is bigger than the cost of the Iraq war.

Hopes for a speedy deal on the rescue package, crafted by Paulson and Federal Reserve Chairman Ben Bernanke, dimmed when a group of conservative Republican lawmakers proposed an alternative plan on Thursday.

The conservatives called for the government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure.

Sen. Richard Shelby, the top Republican on the Senate Banking Committee, cast doubt on the bailout plan.

Rep. Barney Frank, the powerful Democratic chairman of the House Financial Services Committee, countered that passage depends on Republicans, and Senate Majority Leader Harry Reid complained that presidential election politics had hurt the talks on the plan.

Both presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, flew to Washington on Thursday to try to help negotiate a deal, but deep divisions remained over how to shield taxpayers from losses that could reach hundreds of billions of dollars.

McCain went to Capitol Hill on Friday to try to negotiate a compromise and agreed to attend the first of three presidential debates with Obama on Friday evening, ending two days of suspense and setting up a showdown that could help decide a tight race for the White House.

As the White House pressed hard for a deal, Vice President Dick Cheney canceled trips to New Mexico and Wyoming to “assist with the pending legislation,” his spokeswoman said.

Although Democrats control Congress, they are hesitant to pass a bailout bill without rank-and-file Republican support because of the risk of leaving their party politically exposed in an election season.

The heated debate comes just weeks before the November 4 presidential and congressional elections in which many lawmakers are trying to retain their seats.

Lawmakers critical of the Paulson plan say they fear that freewheeling bankers will get off too lightly and that the wider crisis will persist -- a concern echoed by many voters.

With American newspaper headlines screaming about bankrupt banks and insurers, financial advisers -- especially those in the public eye -- are being swamped.

“There’s a feeling of helplessness that nobody seems to have the answers,” said Teresa Dixon Murray, who writes a weekly column about personal finance at the Cleveland Plain Dealer newspaper. She said she has never received so many calls and e-mails in her 10 years as a financial reporter.

The 13-month-old credit crisis came to a head this month after the U.S. government's takeover of mortgage companies Fannie Mae FNM.P and Freddie Mac FRE.P, the bailout of insurer American International Group Inc AIG.N, and the bankruptcy filing of investment bank Lehman Brothers Holdings Inc LEHMQ.PK.