Central banks boost efforts but U.S. lawmakers reject bailout

By David Lawder and Krista Hughes

WASHINGTON/FRANKFURT (Reuters) - The world's central banks redoubled their efforts on Monday to revive the paralyzed global financial system but their efforts may come to naught after U.S. lawmakers rejected a bank bailout bill.

The House of Representatives rejected by a vote of 228-205 a bill to authorise the Treasury Department to spend up to $700 billion (387 billion pounds) to purchase troubled mortgage-backed bonds from banks, with the goal of jump-starting stalled capital markets.

Though faulted by many, the bill was also seen by some as the kind of measure that could resuscitate the world's bank-to-bank lending market, which is crucial to keeping the global economy alive.

News of the bill's rejection caused stocks to plummet but sent U.S. Treasuries prices soaring as investors sought the safety of government bonds, just the kind of risk-averse flight to quality that officials have been trying to unwind.

"Now the credit markets are going to be even more frozen," Bill Gross, chief investment officer of Pacific Investment Management Co, told CNBC television.

News of the House vote followed the Federal Reserve's announcement of a $330 billion expansion to arrangements aimed at boosting U.S. dollar liquidity throughout the global financial system to counteract a world financial crisis emanating from last year's mortgage meltdown in the United States.

The action increased reciprocal swap lines with the European Central Bank and eight other central banks to $620 billion from $290 billion previously.

Earlier on Monday, European and Asian central banks had already been busy pumping more money into the sclerotic world banking system in an effort to persuade financial firms to stop hoarding cash, which threatens to bring the global economy to a halt.