US bailout likely as IMF warns of full-blown crisis

As the International Monetary Fund gave its bleakest warning yet about the US economy, the House of Representatives appeared last night to be edging towards approval of the Bush administration's bank bailout. But the vote, expected today, is likely to be close, with no certainty about the outcome.

Hopes of passage rose after the Senate on Wednesday evening endorsed a substantially amended version of the $700bn (£398bn) rescue package rejected by the House two days earlier. The majority in the Senate was a solidly bipartisan 74 to 25, with presidential candidates Barack Obama and John McCain voting in favour.

The original bill failed in the House by 228 votes to 205, mainly because of a revolt by Republicans, two-thirds of whom opposed it. The key question now is whether the sweeteners added to the measure will be enough to persuade at least a dozen Republicans to change their minds without sacrificing the support of some Democrats.

These so called "blue dogs" – fiscal conservatives on the party's right – strongly oppose tax concessions in the measure, costing an estimated $150bn and only partly offset by $40bn from closing tax loopholes. "We're angry about this," said Steny Hoyer, Democratic Majority Leader in the House. But he added: "Frankly we don't have much flexibility and this [bill] is important."

The same resignation was evident among Republican rebels, torn between dislike of greater state intervention and warnings of economic peril. "The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis," the IMF said in its semi-annual World Economic Outlook yesterday.

"We've got to send the signal to US markets, consumers and world markets that we're dealing with this," said John Shadegg, a conservative Arizona Republican. "I'm inclined to hold my nose and vote yes."