South Korea's Kospi index dropped 5 per cent in early trading, as the country's Financial Services Commission announced a ban on the short-selling of shares until the end of the year, the Yonhap news agency said.

Al Jazeera's Rosiland Jordan, reporting from Washington DC, said the rejection of the bill was a shocking loss for the Bush administration.

A substantial number of Republicans were saying they did not want the increase in spending did not believe in any government intervention in the economy, our correspondent said.

George Bush, the US president, said he was "very disappointed" by the rejection of the bail-out and had summoned top aides to plan the next steps.

IN DEPTH


The US bail-out package

Nancy Pelosi, the speaker of the house, announced that "the legislation has failed and the crisis is still with us". 

"We must work in a bi-partisan way to have another bite at the apple," she said.

The House of Representatives is to reconvene on Thursday over the issue but Republican and Democratic leaders have much to do if they are to persuade their dissenting colleagues to support the bail-out plan.

Eric Cantor, one of the Republicans who led house conservatives in raising objections to the draft plan but who voted for the revised plan on Monday, blamed Pelosi for the bill's failure, saying she had struck "the tone of partisanship that frankly, was inappropriate in this discussion".

REACTION

Political reaction to the bail-out rejection

 

 

 


Economic analysis of what the bill rejection means

"I think that this is a failure on the case of Speaker Pelosi to listen not only to her members, but certainly to our members and the common bonds that brought our members together on this very important issue for the American people.

"This is not a partisan crisis. It is an American crisis affecting everyone in the country," he said.

But Gerald Friedman, a US economist, told Al Jazeera the Republicans were to blame.

"The Republicans in the House of Representatives are playing chicken with world economy.

"The pro-deregulation people, the Republicans who voted this down, are the same people who have deregulated financial markets over the last 30 years.

"The people that got us into this mess are now the ones that want to wash their hands of it. It's a little hypocritical."

'Shocking scenes' 

Al Jazeera's John Terrett reported shocking scenes on the floor of the New York Stock Exchange as investors reacted to the failed bill. 

IN VIDEO

US citizen's economic concerns

Effects of bail-out snub

People were standing around open-mouthed, shocked and not knowing what to say or what to do next, our correspondent said, adding that traders had been expecting the bail-out plan to have been voted through before markets opened on Monday.

He also explained that banks were still not lending to each other - meaning the credit markets were not unfreezing - and the widening international crisis, with banks being rescued on Monday in Germany, Iceland, the UK and Belgium and with New Zealand going into recession, meant fears of a global recession were escalating.

Henry Paulson, the US treasury secretary said US regulators would use "all the tools available" to help the US economy, but he warned their powers were  "insufficient" and a rescue plan was urgently needed.

Saying that the rescue plan was "too important to simply let fail", he added: "We need to work as quickly as possible."

Monday's rejection of the bill came despite urgent warnings from Bush and congressional leaders of both parties that the US economy could nosedive into recession, or even a depression, without it.