World markets have fallen, despite the fact that a U.S. financial rescue package cleared its first hurdle, passing by an overwhelming margin in the U.S. Senate. From Washington, VOA's Michael Bowman reports.

World markets might have been expected to breathe a sigh of relief after the U.S. Senate approved a bill authorizing the federal government to purchase hundreds of billions of dollars in bad debt from troubled financial institutions. The measure is seen by many economists as an important step toward ending an international credit crunch that could strangle global economic growth.

But U.S. stocks opened down and sank even lower by midday trading. The losses came amid another indication of a slowing American economy: applications for unemployment benefits have risen to their highest level in more than seven years.

President Bush speaks to reporters during his meeting with business leaders regarding the financial crisis at the Eisenhower Executive Office Building, 02 Oct 2008

At the White House, President George Bush met with U.S. business leaders, and said the bailout package must not stall in the House of Representatives, which rejected a similar bill Monday, prompting the biggest ever single-day point loss in U.S. market history.

"This is an issue that is affecting hardworking people," he said. "They are worried about their savings. They are worried about their jobs. They are worried about their houses. They are worried about their small businesses. And, the House of Representatives must listen to these voices."

While Asian markets were mixed, all major European markets reversed early gains and finished with losses.

Europe's market downturn came after the European Central Bank opted to keep interest rates unchanged. ECB President Jean-Claude Trichet did not rule out the possibility of future rate cuts to boost economic activity and reassure financial markets, but said the bank was holding steady for now to guard against inflation.

"The economic outlook is subject to increased downside risks, mainly stemming from a scenario of ongoing financial market tensions affecting the real economy more adversely than currently foreseen," he said. "Other downside risks relate to the possibility of renewed increases in highly volatile energy and food prices, disorderly developments owing to global imbalances, and rising protectionist pressures."

Meanwhile, the International Monetary Fund is warning of a worldwide slowdown in economic activity.

"It is now all too clear that we are seeing the most dangerous shock to the mature financial markets since the 1930s, posing a major threat to global growth," said IMF Deputy Research Director Charles Collyns. "We find that when the banking system suffers major damage, as in the current episode, the likelihood of a severe and protracted downturn in activity increases."

The increasingly global financial crisis began with a rash of U.S. home foreclosures after a prolonged period of loose credit that saw millions of Americans acquire home mortgages they could not afford. In recent months, most major U.S. financial institutions that traded heavily in mortgage debt have failed, been sold off, or were taken over by the U.S. government.