The U.S. Senate voted in favour of a revamped $700-billion US financial bailout package Wednesday night. (APTN/Associated Press)

The U.S. Senate has voted in favour of a $700-billion US financial bailout package, improving the chances it will soon garner approval from the House of Representatives and possibly stave off a national recession.

The package, an overhauled version of a bill rejected by the House of Representatives on Monday, was passed by a vote of 74-25 on Capitol Hill on Wednesday night after Democrats and Republicans teamed up to ensure its passage.

In a written statement issued after the vote, U.S. President George W. Bush praised senators for their efforts and urged the House to follow suit.

"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said.

"The American people expect — and our economy demands — that the House pass this good bill this week and send it to my desk."

The adapted bill, entitled the Economic Stabilization Act, will be returned to the House of Representatives, which is expected to vote on it Friday.

Changes to the proposed legislation included an increase in the size of bank deposits insured by the Federal Deposit Insurance Corp. to $250,000 from $100,000.

The bill also added $110 billion in tax breaks for businesses and the middle class.

The presidential contenders, Democrat Barack Obama and Republican John McCain, both senators, were in Washington for the vote, along with Senator Joe Biden, the Democratic vice-presidential nominee.

“This is what we need to do right now to prevent the possibility of a crisis turning into a catastrophe,” Obama said from the Senate floor.

In Missouri, before flying to Washington, McCain said, “If we fail to act, the gears of our economy will grind to a halt.”

The increase in federal deposit insurance had been endorsed by both Obama and McCain. The move could help ease a crisis of confidence in the banking system, said FDIC chair Sheila Bair.

In the final vote, 39 Democrats, 34 Republicans and independent Senator Joe Lieberman of Connecticut voted "yes." Nine Democrats, 15 Republicans and independent Senator Bernie Sanders of Vermont voted "no."

Senate Minority Leader Mitch McConnell walks into his office in the Capitol building on Wednesday during Senate negotiations on the financial bailout package. (Evan Vucci/Associated Press)

Some Congressional leaders said Wednesday that the changes to the bill, combined with the complaints from constituents over Monday's stock market plunge, have improved the prospects for the measure's approval.

Others suggested that the tax breaks could prompt conservative-leaning Democrats who supported the bill on Monday to flip their position because it could add to the federal deficit.

As Senate members voted, some of their counterparts in the House continued the search for the 12 additional votes needed to reverse Monday's defeat.

Although it doesn't outline how the tax cuts will be paid for, the revised deal includes breaks that are popular with businesses and would prevent the alternative minimum tax from hitting 20 million middle-income Americans.

It also provides $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana.

While 11 days of bipartisan negotiations on the bailout have been intense and even contentious at times, they were an "extraordinary experience," Senator Judd Gregg said Wednesday.

"This is the way government's supposed to work, folks, and it did."

Emerging consensus

Some legislators told the Associated Press earlier Wednesday they believe an emerging consensus on raising the federal deposit insurance has helped progress significantly.

When the proposed legislation was rejected by the House on Monday, it sent shock waves through stock markets around the world and prompted U.S. President George W. Bush to issue a sombre televised statement urging Congress to act.

United States governors and business lobbyists also mounted pressure on Wednesday for legislators to pass the proposed package.

"There is a time for partisanship and there is a time for getting things done," Texas Gov. Ricky Perry and West Virginia Gov. Joe Manchin wrote in a letter to members of Congress.

"Americans across the country and in every demographic are feeling the pinch. If Congress does not act soon, the situation will grow appreciably worse. It's time for leadership. Congress needs to act now," they wrote.

Business urges action

The U.S. Chamber of Commerce also launched a 30-second radio ad in Washington calling on Congress to act.

"Inaction, without a doubt, would cause our economy to collapse," R. Bruce Josten, the chamber's executive vice-president, says in the ad.

In a letter sent Tuesday to all members of Congress, more than 50 business trade groups said legislators had to quickly act "to prevent a meltdown" of the country's capital markets and disappearance of credit, making loans for businesses and individuals harder to come by.

Groups signing the letter included:

• The National Association of Manufacturers.
• The American Banking Association.
• The National Association of Realtors.

Critics of the previous plan, which would have seen the U.S. government immediately buy as much as $350 billion in distressed debt held by Wall Street banks and investment houses, said it would have done too much for Wall Street firms and moguls, and too little for the average American.

With files from the Associated Press