A $700-billion US package negotiated by U.S. congressional leaders over the weekend to bail out the American financial industry failed a vote in the House of Representatives.

Despite pleas by President George W. Bush — who was phoning undecided legislators minutes before the roll call — as well as congressional leaders, Monday afternoon’s vote failed by a margin of 228-205.

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The Capitol is illuminated under stormy skies Sunday evening. The House of Representatives could reconsider its rejection of a financial bailout plan as early as Thursday. ((J. Scott Applewhite/Associated Press))

Financial markets nosedived in the wake of the rejection of the deal, with the Dow Jones industrial average plummeting by 777.68 points, its biggest single-day drop, and Toronto's S&P/TSX composite index falling by 840.93 points.

When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away.

Ample No votes came from both the Democratic and Republican sides of the aisle. Bush and a host of leading congressional figures had implored the legislators to pass the legislation despite howls of protest from their constituents back home, who balked at the price and the perception that the government would be using taxpayer dollars to bail out greedy financial tycoons.

"While the legislation may have failed, the crisis is still with us," House Speaker Nancy Pelosi said at a news conference after the bill's defeat .

"What happened today cannot stand," she said. "We must move forward, and I hope that the markets will take that message."

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U.S. House Speaker Nancy Pelosi spoke at a Monday news conference on Capitol Hill in Washington after congressmen failed to pass the financial bailout package. ((Susan Walsh/Associated Press))

Pelosi added that the discussions leading up to the bill were wholly bipartisan, with both parties committing to provide half the votes needed for the measure to pass. In the end, two-thirds of Democrats voted for it.

"We delivered on our side of the bargain," Pelosi said.

Representative John Boehner, the Republican minority leader, who supported the deal, said Congress has more work to do.

"We have no choice but to work to try to find a solution to make sure that we save our economy," Boehner said after the vote.

In Colorado, Sen. Barack Obama, the Democratic presidential candidate, said: "Democrats, Republicans, step up to the plate, get it done."

His Republican rival, Sen. John McCain, also urged his fellow congressmen to go back to the table.

"Now is not the time to fix the blame," he said. "It's time to fix the problem."

Members of the House were discussing a motion to reconsider their vote later, with top Democrats and Republicans attempting to arm-twist enough members to cover the razor-thin margin blocking the deal's passage. A revote was not expected before Thursday when the House plans to reconvene.

Roy Blunt, the Republican House whip, said that he had counted 12 more Yes votes on his side going into the roll call — seemingly enough for a one-vote victory — but that he thought several members were dissuaded at the last minute by a "partisan" speech by Pelosi.

"We could have gotten there today had it not been for the partisan speech that the Speaker gave on the floor of the House," Boehner said. Pelosi's words, the Ohio Republican said, "poisoned our conference, caused a number of members that we thought we could get to go south."

The Republican leaders didn’t specify which of Pelosi’s remarks they considered to be unduly partisan. Pelosi made reference to "bipartisan efforts" in her perorative speech before the vote, but also briefly blamed Bush's policies for the economic turmoil.

Rep. Barney Frank, a Massachusetts Democrat and chair of the House financial services committee, scoffed at the Republicans' explanation.

"Well if that stopped people from voting, then shame on them. There’s a terrible crisis affecting the American economy," he said. "And because someone hurt their feelings, they decided to hurt the country. I would not have imputed that amount of pettiness."

'Mother of all debts'

Bush was "very disappointed" with the rejection and met with his economic advisers, including U.S. Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke, to discuss what to do next.

The bailout would have seen the U.S. government immediately authorized to buy up $350 billion US in distressed debt held by Wall Street banks and investment houses, with a further $350 billion US available later. Much of the bad debt stems from the collapse of the market for subprime mortgages, which are the faulty loans on the homes of ordinary Americans.

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Asian markets were down on Monday morning as investors waited for final voting in the U.S. Congress on a bailout plan. ((Bullit Marquez/Associated Press))

The government would have held on to the debts for several years, possibly until credit markets settled, house prices recovered and it could sell the debt at a profit.

But that prospect didn’t appeal to all legislators. Representative Jeb Hensarling, a Texas Republican, called the financial package "too much bailout and not enough workout."

"I fear that taxpayers will end up inheriting the mother of all debts," Hensarling said.

The U.S. government has already provided $900 billion US in relief as part of the financial crisis, including $85 billion US to buy out troubled insurer AIG and $200 billion US to take over mortgage lenders Fannie Mae and Freddie Mac.

Critics of the bailout plan said it would have done too much for Wall Street firms and moguls, and too little for the average American worker. Alternative plans discussed by pundits included having the government provide mortgage relief directly to homeowners, as well as loan guarantees for people at risk of losing their houses to stave off or even reverse a foreclosure.

With files from the Associated Press