WASHINGTON - PRESIDENT George W. Bush pledged on Friday that the US government was acting to shore up the nation's ailing economy, as he warned taxpayers they would bear a significant share of the cost.

'This is a pivotal moment for America's economy,' the president said.

'Problems that originated in the credit markets and first showed up in the area of subprime mortgages have spread throughout our financial system.'

'There will be ample opportunity to debate the origins of this problem. Now is the time to solve it.'

US authorities were working with lawmakers to draw up a rescue plan which would involve buying up the assets such as mortgages from ailing banks, he said.

But he warned: 'These measures will require us to put a significant amount of taxpayer dollars on the line. This action does entail risk. But we expect that this money will eventually be paid back.' And he stressed: 'The risk of not acting would be far higher.'

'Further stress on our financial markets would cause massive job losses, devastate retirement accounts and further erode housing values as well as dry up loans for new homes and cars and college tuitions. These are risks that America cannot afford to take.'

Earlier, Treasury Secretary Henry Paulson said a rescue plan being drafted with Congressional leaders to help purge bad assets from the banking sector would cost 'hundreds of billions' of dollars.

'We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem,' Mr Paulson told reporters.

The latest efforts come amid an intensifying financial crisis that has sent global markets into a tailspin, despite a massive government bailout of insurance giant American International Group and a takeover of mortgage finance firms Fannie Mae and Freddie Mac.

The credit crunch has been caused by a meltdown in US home prices after a frenzied boom that induced a wave of investments before a collapse.

Mr Bush urged Americans to remain confident in the long-term future of their economy.

'Investors should know the United States government is taking action to restore confidence in America's financial markets so they can thrive again.'

'In the long run Americans have good reason to be confident in our economic strength ... This country is the best place in the world to invest and do business,' he said.

The US administration's actions would 'help take pressure off the balance sheets of banks and other financial institutions. It will allow them to resume lending and get our financial system moving again,' he said.

And he also stressed that the Federal Reserve was taking measures to pump extra liquidity into the market and help reassure small investors anxious that their life savings and pension plans were going up in smoke.

'These measures will act as grease for the gears of our financial system which were at risk of grinding to a halt,' the president said. -- AFP