U.S. offers $2 trillion bank plan but Wall St stocks slump

By Glenn Somerville

WASHINGTON (Reuters) - U.S. Treasury chief Timothy Geithner on Tuesday unveiled a new bank rescue plan that would put $2 trillion (1 trillion pounds) to work mopping up bad assets and restoring credit, but stock markets plunged on fears it would not work.

Global markets had intensely awaited Geithner's ideas for a plan mixing private and public funding to stabilise a financial system tottering under the weight of bad mortgages, but were disappointed over the scant details provided.

The Dow Jones industrial average ended down 4.6 percent -- its biggest one-day percentage drop since December 1 -- with bank stocks hit particularly hard. U.S. government bonds rose as investors scrambled for safe-haven debt.

In a speech on television and in Capitol Hill testimony, Geithner made his case for how the Obama administration plans to handle the roughly $350 billion left in a $700 billion financial bailout fund approved by Congress in October.

Geithner said the lack of public confidence in prior rescue efforts had made it all the more difficult to stop "a dangerous dynamic" in which a lack of credit undercuts the economy and leads to more weakness among banks, worsening the recession.

"This is very complicated to get it right," he said in an interview on Bloomberg Television. "We are going to try to get it right before we give the details so that we don't add further to uncertainty in these markets."

He steered clear of saying whether the administration might have to ask Congress for more money to fix the banks, restore credit and counter recession, but did not rule it out.

"We're going to consult with the Congress carefully to try to make sure the world understands that the resources necessary to solve this will be available over time," Geithner told CNBC, adding: "The important thing is that ... we send a basic signal, working with the Congress, that we will do what's necessary to fix this."