Congress started challenging a 700-billion-dollar White House plan to rescue the US financial system Monday as US stocks plunged more than 3 per cent and industrialized countries pledged action to ensure global economic stability.

On Wall Street, the last two remaining major investment banks, Morgan Stanley and Goldman Sachs, left the high-wire world of risk to become bank-holding companies with the approval of the US central bank, the Federal Reserve.

The move, which means the two firms must submit to more stringent regulations on their capital reserves, marked the end of a two-decade era on Wall Street where unregulated investment banks created ever more complex financial instruments.

Some of those instruments involved bundled mortgage debts, which have soured, sparking a credit crisis and fears that the economy is on the precipice of ruin.

US President George W Bush pushed Congress for speedy action on the mammoth rescue plan, warning against attempts to weigh it down with additional measures.

Legislators were dealing with a growing mood of anger among taxpayers upset that they must struggle not only to pay rising food and energy prices with stagnant wages but must also bail out high- flying Wall Street firms.

The 700-billion-dollar proposal would allow the US Treasury to buy up bad mortgage securities and other "toxic" assets, so that clogged credit lines would be cleared. The White House submitted bare-bones legislation to Congress with few details.

House Financial Services Committee Chairman Barney Frank, a member of the centre-left Democratic majority, said that lawmakers had "made it clear" that the government must receive equity shares in the companies that benefit from the bailouts.

Both Democrats and Republicans want to limit salaries and severance packages for senior executives of bailed-out firms.

Frank and Democratic Senator Chris Dodd, chairman of the Senate Banking Committee, want to help struggling homeowners to avoid foreclosure, and both called for stringent oversight of the bailout programme, which is to be run by the Treasury Department.

More than a year of financial turmoil came to a head last week as Lehman Brothers declared bankruptcy, Merrill Lynch was swallowed by Bank of America and the US government took over the insurance giant American International Group, which got into trouble insuring risky mortgage securities.

With the November 4 general elections looming, the issue has quickly moved to the centre of the presidential campaign.

Senator Barack Obama, 44, the Democratic nominee, has supported the bailout but called for a reform of "rules of road that let Wall Street run wild and stick Main Street with the bill."

Senator John McCain, 72, nominee of the centre-right Republican Party, has a long track record as an advocate of free markets and deregulation, and said that the White House's proposed bailout "makes me deeply uncomfortable."

"When you're dealing with billions of dollars of taxpayers' money, 'Trust me' isn't good enough," he said at a campaign rally.

While news of the bailout, which was sent to Congress over the weekend, help calm US and world stock markets late last week, by Monday Wall Street was worried that plan could fail or be delayed in Congress.

Major US stock indices dropped by more than 3 per cent, the dollar plummeted, and oil and other commodity prices soared amid the worries.

"They really haven't changed the economic fundamentals at all," Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc in Fairport, New York, was quoted as saying by the Bloomberg financial news agency. "We still have a debt-laden US consumer facing falling employment."

Finance ministers and central bankers from the Group of Seven (G- 7) leading industrialized economies pledged action.

"We are ready to take whatever actions may be necessary, individually and collectively, to ensure the stability of the international financial system," the group said in a statement issued after a conference call.

The G-7 countries - Canada, France, Germany, Italy, Japan, Britain and the United States - appeared to be divided in their reactions to the US appeal for help.

The US federal government is urging them to take similar action in their own countries and has also offered the possibility that the US plan could help foreign firms struggling because of their US investments.

France, Germany and Japan have individually said they had no plans to take the same extreme measures as Washington.

In Britain, Alistair Darling, chancellor of the exchequer, said that the ongoing credit crisis was a "global problem" that required "global solutions ... not a knee-jerk reaction."

Chinese President Hu Jintao and Bush discussed the US financial crisis Monday by telephone. (dpa)