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The U.S. House of Representatives has rejected a historic $700 billion
The U.S. House of Representatives has rejected a historic $700 billion bailout plan to rescue the country's financial system, sending the stock market into a steep decline and pushing down oil prices. (VIDEO)

The economic stabilization plan, originally devised by the Bush administration and amended by Democrat and Republican congressional leaders on Sunday, was rejected on Monday by a 228-205 vote after heated four-hour debates, raising concerns that the world's largest economy faces a prolonged recession.

Some two-thirds of Republican lawmakers refused to support the rescue package. They were joined by 95 Democrats.

The rejection of the bailout plan by the House sent the Dow Jones Industrial Average into a tailspin as the index plunged 777.68 points, closing 7% down - its biggest drop in history - while the Nasdaq stock market finished 9.1% down. U.S. oil prices plunged by more than $10 to below $100 per barrel.

U.S. President George W. Bush said he was disappointed with the rejection of the rescue plan. "Our strategy is to continue to address this economic situation head-on and we'll be working to develop a strategy that will enable us to continue to move forward," Bush said.

The economic stabilization plan, the largest in the country's history, was intended to give the U.S. administration powers to buy devalued mortgage-related assets held by struggling financial companies and banks.

The plan, designed to prevent the current crisis from spreading to the entire U.S. economy, was prepared after a wave of defaults among U.S. financial institutions, including the bankruptcy of investment bank Lehman Brothers, Washington Mutual and the government's $85 billion bailout of insurance giant AIG.

Elsewhere, as the markets reacted to the news that the plan had been rejected, Germany's Dax fell 1.3% while the U.K.'s FTSE 100 was up 0.6%.

In Asia, Japan's Nikkei index was down 4.1% on Tuesday, and Hong Kong's Hang Seng lost 2.4% in late trading.

Trading was also briefly suspended on Russia's two main stock exchanges on Tuesday morning.


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