WASHINGTON (AFP) -
Leading Democrats were optimistic that a 700-billion-dollar Wall Street bailout would pass the US House of Representatives on Friday, but uncertainty kept stock markets skittish.

Democratic Majority leader Steny Hoyer said the House would vote on the reworked bill, which sailed through the US Senate Wednesday, on Friday morning.

"I am hopeful that there will be bipartisan majority support for this bill that is critical to stabilizing our nation's economy for all working Americans," he said in a statement.

But global stocks sank heavily with losses in the US and in Asia as some lawmakers continued to make known their opposition to using vast amounts of taxpayer money to bail out Wall Street firms.

The amended version of the plan was laced with 150 billion dollars in tax breaks to coax reluctant lawmakers from both the Democratic and the Republican parties to get on board.

The bill thrown out of the House on Monday was resoundingly passed by 74-25 by the Senate, the upper chamber, spurring hopes the House of Representatives might now follow suit.

Just over a month from election day, presidential candidates Barack Obama and John McCain also backed the effort, piling on the pressure after rejection of the bill sent global markets into a spin, causing the largest one-day loss ever on the Dow Jones.

President George W. Bush Thursday joined the groundswell of pressure, urging the House to follow the Senate's lead and approve the massive rescue package, warning "people's jobs are in jeopardy."

"This issue has gone way beyond New York and Wall Street. This is an issue that is affecting hard-working people," Bush said in his 14th appeal in the past 15 days to lawmakers.

Tennessee Republican Zach Wamp acknowledged Americans were still angry that the taxpayer was picking up the tab for Wall Street's mistakes. "They are mad as heck. The average American now stands to lose," he told Fox News.

"But you have got to do what you think is right. I thought the right thing Monday was to vote no. And I think the right thing to do tomorrow is to vote yes."

Hoyer raised concerns that some of his fellow Democrats who originally voted for the bailout might also now reject it because of the tax breaks.

"There's no doubt the tax package is very controversial. The Senate, in my opinion, is adding that on because they think that's the only way they can get it passed," he told NBC television.

Pelosi sought to explain the days of wrangling since Treasury Secretary Henry Paulson brought a three-page proposal to lawmakers on September 18, which has now ballooned to more than 400 pages.

"Two weeks ago as many of you know, the administration came to see us, and they lifted a rock and under that rock we saw lots of vermin and we found the bill brought to us unacceptable in a bipartisan way and amended it and further amended in the Senate last night.

"This is only the beginning," Pelosi said, vowing Congress would be holding hearings into how Wall Street led the world's largest economy to the brink of disaster.

The administration has said the bailout legislation is direly needed to ease a deepening credit freeze and to ease volatility on global markets.

The rescue bill, like the earlier one rejected by the House, gives the US Treasury power to buy up toxic mortgage debt which has been choking the financial industry.

It would essentially create a 700-billion dollar federal program to buy bad assets from banks and other financial firms at a steep discount.

Backers of the legislation said they hope the federal government will eventually be able to recoup most or all of the money by selling the assets later.

To make the bill more attractive, the Senate raised the ceiling on federal insurance for bank deposits from 100,000 dollars to 250,000 dollars, and added up to 150 billion dollars in tax break extensions for middle class families and business.

They also retained the limits of "golden parachute" severance payments to disgraced Wall Street executives.

Many skeptics still remain however. Nobel Prize-winning economist Joseph Stiglitz warned the rescue package was unlikely to restore economic stability.

"It's like giving a massive blood transfusion to a person bleeding from an internal hemorrhage," he said during a speech in Austria.

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SINGAPORE (Reuters) -
Oil fell more than a dollar to below $93 a barrel on Friday, its third consecutive day of losses, on skepticism that a U.S. bailout package would be enough to prevent further oil demand falls.

The House of Representatives could vote as early as Friday on the revised $700 billion financial industry rescue bill, which was approved by the U.S. Senate late on Wednesday but has failed to lift markets so far.

U.S. light crude for November delivery fell $1.00 to $92.97 a barrel by 0250 GMT, having slid by a hefty $4.56 on Thursday on demand worries and a stronger dollar.

London Brent crude fell 83 cents to $89.73 a barrel, the first time since September 17 that the contract has fallen below $90 a barrel.

"Traders are watching the outcome of the U.S. House of Representatives vote on the bail-out package," Jonathan Kornafel, director Asia, Hudson Capital Energy, said in a note on Friday.

"Unfortunately, while a "no" vote may result in a financial meltdown, a "yes" vote may cause nothing more than increased volatility across all markets," he added.

U.S. stocks dropped 4 percent on Thursday and Asian stocks were also lower on Friday.

The growing financial crisis has added to concerns about oil demand, which has slumped in industrialized countries like the United States this year, sending crude prices crashing from record highs over $147 a barrel hit in July.

Total U.S. oil product demand over the past four weeks is down 7.1 percent from a year earlier, the U.S. Energy Information Administration's weekly data showed.

Additional pressure on crude prices came as investors -- who had flocked to crude and other commodities earlier this year as a hedge against the weak dollar and inflation -- unwound positions.

"In the current situation when the market is facing tightness in the money market, investors don't want to take risks in oil and other commodities markets," said Shuji Sugata, manager at Mitsubishi Corp Futures and Securities Ltd in Tokyo.

The dollar hovered near a one-year peak against a basket of major currencies on Friday as banks and financial institutions have scrambled to buy the U.S. currency on the open market after being locked out of frozen money markets.

U.S. government data -- showing rising inventories of crude, gasoline and natural gas as oil infrastructure recovered from Hurricane Ike -- also weighed on crude prices. (Additional reporting by Chikafumi Hodo in Tokyo; Editing by Michael Urquhart)

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BLOOMINGTON, Indiana (Reuters) -
The Federal Reserve should not cut interest rates again, even though the economy may face recession, a top Fed policy-maker said on Thursday.

"I think lowering interest rates right now, maybe, is not the right response," James Bullard, president of the Federal Reserve Bank of St. Louis, told an audience at Indiana University-Bloomington after giving a speech.

Bullard's stance contradicts investor expectations for the Fed to cut rates by a half percentage point at the U.S. central bank's next scheduled policy meeting later this month, as implied by financial futures markets.

The Fed slashed rates by a total of 3.25 percentage points to the current 2 percent level beginning in September 2007 to offset the impact of the U.S. housing crisis on the wider economy.

Fallout from the mortgage crisis has fundamentally reshaped the U.S. financial landscape and driven Congress to consider a $700 billion bank bailout to head off feared drastic economic consequences.

Bullard, who is not a voting member of the Fed's policy-setting committee this year, said the Fed was right to concentrate on tackling the turmoil in financial markets. But, in unusually blunt language for a policy-maker, he warned that cutting interest rates further was not the right solution.

"We've already lowered rates a lot. We've created this low interest rate environment. It is a blunt instrument ... and you've got this brewing inflation problem that could get out of control if we don't keep an eye on it," he told reporters.

Bullard also cautioned that another rate cut would put the U.S. central bank on a path toward territory that many blame for contributing to the country's current housing woes.

"I'd be concerned about the 1 percent number. The 1 percent number was the one that was in place earlier this decade, and was at times associated with creating a lot of problems. So I think that is something to keep in mind as a policy-maker," he said.

On the other hand, Bullard acknowledged that recent readings from the labor market were poor and may point toward a steeper weakening in the economy than he had anticipated.

"The jobless claims, that number is at recession levels. When unemployment starts going up at the rate it is here, that is usually a recession indicator, and non-farm payrolls have been declining all year," he said.

"The labor market part does look like recession, so I have become a little bit more pessimistic on that issue."

Initial U.S. jobless claims jumped to 497,000 in the week ended September 27, the highest level in seven years, although a government official said that hurricanes Ike and Gustav were partly to blame for the increase.

The government's comprehensive labor report due for release on Friday is expected to show the U.S. economy as a whole shed jobs for a ninth consecutive month in September. Economists' median forecast is for the September non-farm payrolls report to show a loss of 100,000 jobs.

Bullard said in his speech that the economy might face a prolonged downturn, although there is also a chance of a less severe slowdown.

"There is some possibility of a relatively benign outcome, where the financial market shakeout plays itself out and real economic performance is muted but not disastrous.

"But there is also some possibility of a very adverse outcome in which the entire economy is drawn into a protracted downturn," he said.

Bullard urged that amid all the recent dramatic financial developments, the Fed stick to its guns and not forget the lasting consequences of allowing inflation to get out of hand.

"Inflation and inflation instability put an economy's financial sector at risk, " he said. "Therefore, it is critical that monetary policy-makers not lose sight of the importance of maintaining price stability -- even during periods of financial turbulence," he said.

(Editing by Leslie Adler)

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