Bailout Fails, Stocks Plunge

The controversial measure needs 218 votes for passage, but it came up 13 votes short of that target, as the final vote was 228 to 205 against. About 60 percent of Democrats voted for the measure, but less than a third of Republicans backed it.

The bill was defeated by an alliance of conservative Republicans who viewed the bill as "socialism" and left leaning Democrats who resented that the bill did not help struggling home-owners.

The vote comes after lawmakers and the Bush administration finalized legislation following a weekend of high-stakes negotiations , which is designed to get battered U.S. credit markets working normally again.

"Today is the decision day," said Barney Frank, D-Mass., on the House floor. "If we defeat this bill today, it will be a very bad day for the financial sector of the American economy and the people who will feel the pain are not the top bankers and top corporate executives but average Americans."

House Republicans blamed Democrat Speaker of the House Nancy Pelosi for a speech on the floor shortly before the vote was taken that inflamed feelings and led to members turning against the bill.

"I believe we could have got there today had it not been for a partisan speech that the Speaker gave, said leader of the House Republicans, John Boehner. "The Speaker had to give a partisan voice that poisoned our conference and that caused a number of our members to go south."

White House spokesman Tony Fratto said President Bush was disappointed in the outcome of the vote.

"There's no question that the country is facing a difficult crisis that needs to be addressed," said spokesman Tony Fratto. Bush is "very disappointed" with the vote, Fratto said

On Wall Street, stocks plummeted as investors followed the developments in Congress.

The Dow Jones industrials dropped suddenly as news of the rejection hit Wall Street. The Dow had already dropped by about 300 points, and then fell a further 300 points in a matter of minutes, before recovering slightly.