Washington - The US Federal Reserve Board late Tuesday announced that it would lend up to 85 billion dollars to embattled insurance giant American International Group (AIG).

In a move to calm financial markets fearing a possible second major Wall Street bankruptcy this week, the Fed engineered an AIG bailout through a two-year loan that gives the government a stake of 79.9 per cent in the conglomerate.

"The board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance," the Federal Reserve said in a statement.

San Francisco - California Governor Arnold Schwarzenegger promised to veto a long-delayed state budget proposal Tuesday, setting the stage for a major showdown with legislators who said they will override his veto.

Schwarzenegger told a news conference that he objected to the failure of the budget to include his demand for spending limits in times of surplus, so that the state could invest in a "rainy day fund."

Washington - President George W Bush on Tuesday added Bolivia to a drugs blacklist after concluding that the South American country has failed to cooperate in stemming production and trafficking of illegal narcotics.

Bolivia joins Venezuela and Myanmar - also known as Burma - as failing to meet international obligations to curb drug trafficking, Bush said in a statement released by the White House.

"I hereby designate Bolivia, Burma, and Venezuela as countries that have failed demonstrably during the previous 12 months to adhere to their obligations under international counter-narcotics agreements," Bush said.

Washington - US Senators Barack Obama and John McCain took aim at Wall Street and each other's economic policies on Tuesday, a day after stocks plummeted on news of Lehman Bros bankruptcy and a Merrill Lynch buyout.

Republican McCain called for a commission to investigate Wall Street excesses.

"In short order, we are going to put an end to the reckless conduct, corruption and unbridled greed that have caused a crisis on Wall Street," McCain said at a campaign event in Florida.

Washington - US lawmakers revived a stalled debate about energy on Tuesday and considered comprehensive legislation that would expand oil drilling off US coasts while boosting investment in alternative fuels.

Majority Democrats introduced a bill in the House of Representatives that was touted as a compromise. It allows limited new offshore drilling and offers tax incentives for renewable energy by repealing tax credits for major oil companies.

But on what has been the major sticking point for weeks, minority Republicans in Congress said it did not go nearly far enough in allowing oil companies to drill offshore.

San Francisco - Google is to launch the first mobile phone running its Android software next week in a joint initiative with T- mobile, the companies said Tuesday.

The open-source Android system is seen as Google's answer to Apple's successful iPhone and as a key initiative in the internet giant's quest to extend its dominance to the mobile web.

Google has worked closely with US carrier T-mobile and Taiwan electronics maker HTC to develop the new phone, which is to be called Dream.