Washington: In  a single sitting the US Senate cleared two controversial, yet crucial, Bills that had the administration, US businesses and financial markets on edge. Apart from the Indo-US nuclear deal, the Senate also cleared a $700 billion bailout package for financial institutions. This vote was  considered by market pundits as crucial to averting economic catastrophe.

The bailout package aims to reinvigorate worldwide credit markets as well as interbank lending. A market dealing with a collapsed mortgages markets has to revive frozen up lines of credit, which are necessary for lubricating economies.

Massively over-leveraged financial institutions have also been collapsing like nine pins, with the market witnessing the demise of legendary names. This has shaken the confidence of the markets to the core.

With dire warnings that failure to act would surely usher in depression, and also with a November presidential and Congressional election looming, the Senate had to act if it was to avoid voter wrath. It did so decisively, voting 74 to 25 in favour, sending the measure to the House of Representatives for a probable vote on Friday.

With the dramatic fall experienced by equity markets on Monday, which sent global markets into a tailspin, the Senate and House leadership had already begun to feel the heat from an enraged electorate which saw the values of its market holdings being reduced drastically.

The redrafted Bill has seen two sweeteners added to it -a tax cut and extended federal protection for bank deposits. It is expected that those in the Congress that had voted against the original Bill would now change their votes.

Treasury secretary Henry Paulson praised the Senate vote and urged the House to act swiftly to ratify it. Senate Majority Leader Harry Reid said he expects the House will approve it on Friday.

"This sends a positive signal that we stand ready to protect the US economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going," Paulson said.

The bailout package essentially empowers the US Treasury to buy distressed assets from financial firms, clean up their balance sheets and  restart the lending process.

US president George W Bush praised the Senate vote and urged the House to quickly do the same.

"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said in a written statement. "The bill the Senate passed is essential to the financial security of every American," he said.

Meanwhile, with the much awaited bailout package sailing through the Senate, and looking very likely to make it through the House this time around, market observers are sounding a note of warning. They opine that the bailout package, though improving the financial position of the banking system, would fail to prevent a recession. It would certainly provide a short-term bounce for stocks and commodities, they say, but as a global slowdown begins to impact, both these asset classes were likely to see new lows.

Rising fiscal deficit would certainly impact bonds as well as the dollar and both were going to fall, observers said.