Democratic presidential hopefuls have seized on the deepening U.S. mortgage crisis and gyrating financial markets as signs they would be better stewards of the economy, but Republicans argue the outlook is strong.

Democrats blame President George W. Bush and his fellow Republicans for the bursting housing bubble that has rocked the markets, and some have rolled out proposals that include billions of dollars in aid to address the problem.

President Bush believes that the market will just correct itself, Sen. Barack Obama of Illinois, who is second in the Democratic national polls, said in a statement. We need a president who will help families afford to own homes rather than how to help the lenders that got us into this problem in the first place.

As the housing market swooned last week, Sen. Hillary Clinton of New York, the Democratic front-runner, proposed $2 billion for state and local housing aid programs, drawing criticism from Republicans who question whether it was needed.

The leading Republican candidate, Rudy Giuliani, said the housing crunch was not foremost on the minds of voters and that the economy was on a sound footing.

I hear concerns about terrorism, I hear concerns about health care, I hear concerns about the price of gasoline when it was even higher, but even now those are the basic ones that you hear about most, the former New York mayor said in an interview on CNBC on Monday.

Republicans, most of whom who sought to distance themselves from Bush in some areas, have been quick to note strong economic growth over the last few years under Republican leadership and were unconcerned about the mortgage fallout on the broader economy.

At this point it seems to me the fundamentals of our economy are very, very strong, Giuliani said.

WARD OFF CREDIT CRUNCH

Global central bankers poured billions of dollars into the banking system last week to ward off a credit crunch amid fears that banks and funds were over-exposed to risky investments in the U.S. mortgage and asset-backed markets.

Volatility in the markets has ebbed somewhat this week but the rate of homes affected by foreclosure is rising in 82 of the top 100 metropolitan areas, according to RealtyTrac, giving Democrats another opening to challenge Republicans.

The end of the housing boom has spilled into the wider economy, which is in large part causing the slowdown in economic activity since it has not yet been replaced by another driver of stronger economic activity, said Christian Weller, a senior fellow at the liberal Center for American Progress.

But one economist said that Democrats will likely have a hard time promoting their fixes for the housing debacle because overall prices have continued to rise despite the slowdown and he does not foresee a large drop in the housing market.

I think if the election were to happen today, the Democrats would have trouble getting traction, said Kenneth Rogoff, an economics professor at Harvard University who has advised Republican Sen. John McCain's presidential campaign.

It's very hard to say what you want to change without coming off as if you don't believe in the miracle of the American economy, he said.

(Additional reporting by Steve Holland)

Hillary Clinton Barack obama George W. Bush