WASHINGTON - THE US House of Representatives on Friday passed a rule 223-205 allowing debate and a final vote on a $700 billion (S$996 billion) Wall Street bailout bill and began general debate on the legislation.

On Thursday, House Speaker Nancy Pelosi said she would not bring the bill to the floor unless there were enough votes to pass it.

The amended version of the 700-billion-dollar (S$996 billion) Wall Street bailout laced with sweeteners to bring reluctant lawmakers on board and help avert an economic meltdown was passed overwhelmingly by Senate on Wednesday.

Ms Pelosi said on Thursday she was confident that after a day of behind-the-scenes haggling the bill would be passed by the House on Friday, after its initial defeat on Monday sent shockwaves around the world.

After a week of tumult, an unprecedented government bailout of the US financial industry gained ground in the House of Representatives on Friday and leaders in both political parties expressed optimism the $700 billion (S$996 billion) measure would clear Congress by day's end for President George W. Bush's signature.

An Associated Press tally showed 22 lawmakers who sent an earlier bailout bill to unexpected defeat on Monday had changed their minds and would vote in favour of the revised legislation, more than the dozen needed.

Officials said changes made to the measure had sparked a far smaller number of defections among previous supporters.

'I'm optimistic about today. We're not going to take anything for granted but it's time to act,' said House Republican Leader John Boehner.

'I think it will pass,' agreed Rep Jim Clyburn, the chief Democratic vote-counter, as debate unfolded in the House chamber.

The Senate passed the measure earlier in the week on a bipartisan vote of 74-25.

'No matter what we do or what we pass, there are still tough times out there. People are mad - I'm mad,' said Republican Rep J. Gresham Barrett, who opposed the measure the first time it came to a vote. Now, he said, 'We have to act. We have to act now.'

Rep John Lewis, a Democrat and another convert, said, 'I have decided that the cost of doing nothing is greater than the cost of doing something.' Critics were unrelenting.

'How can we have capitalism on the way up and socialism on the way down,' said Rep Jeb Hensarling, a leader among conservative Republicans who oppose the central thrust of the legislation - an unprecedented federal intervention into the private capital markets.

If anything, the economic news added to the sense of urgency.

The Labour Department said initial claims for jobless benefits had increased last week to the highest level since the gloomy days after the 2001 terror attacks.

Employers slashed 159,000 jobs from their payrolls, the most in five years. That came on top of Thursday's Commerce Department report that factory orders in August plunged by 4 per cent.

The stock market opened higher on anticipation that the bill would pass, and the financial industry shakeout rolled on unpredictably.

Wachovia announced it had agreed to be acquired by San Francisco-based Wells Fargo & Co rather than by Citigroup.

Executives said the new arrangement would keep the Federal Deposit Insurance Corp, on the sidelines, thus preventing any depletion of the government's fund that backs bank deposits.

The FDIC said it was sticking behind the Citigroup plan, leaving the fate of the bank in limbo.

It was little more than two weeks ago that Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke concluded that the economy was in such danger that a massive government intervention in the private markets was essential.

The core of the plan remains little changed from its conception - the Treasury Department would have $700 billion at its disposal to purchase bad mortage-related securities that are weighing down the balance sheets of institutions that hold them.

The flow of credit has slowed, in some cases drying up, threatening the ability of businesses to conduct routine operations or expand.

At the same time, lawmakers have dramatically changed the measure, insisting on greater congressional supervision over the $700 billion, taking measures to protect taxpayers, and insisting on steps to crack down on so-called 'golden parachutes' --substantial payments that go to corporate executives whose companies fail.

Earlier in the week, the legislation was altered to expand the federal insurance programme for individual bank deposits, and the Securities and Exchange Commission took steps to ease the impact of the questionable mortgage-backed securities on financial institutions.

The legislation had the support of the leadership in both parties - as was the case in the Senate, where it passed on Wednesday on a bipartisan vote of 74-25.

President George W. Bush has been lobbying aggressively for its passage, and the White House issued the latest in a series of grim warnings of the risks of defeat.

'If the financial markets fail to function, American families will face great difficulty in getting loans to purchase a home, buy a family car or finance a child's education,' it said in a written statement.

The two major party presidential candidates, Barack Obama, the Democrat, and John McCain, the Republican also supported the bill and worked to assure its passage.

The vote on Monday staggered the congressional leadership and contributed to the largest one-day stock market drop in history, 778 points as measured by the Dow Jones Industrial Average. -- AP, AFP