The next steps were unclear. The abrupt defeat left President Gorge W. Bush’s administration and congressional leaders scrambling to figure out whether to renegotiate the bill and try other options on October 2.

Stock markets reacted violently. Investors who had been counting on the rescue plan's passage sent the Dow Jones industrial average down well over 700 points. The stock gauge closed 778 points lower - nearly 7 percent.

The measure, which is designed to get battered lending markets working normally again, needed 218 votes for passage. But it came up 13 votes short of that target, with a final vote of 228 to 205 against. Two-thirds of Democrats and one-third of Republicans voted for the measure.

President Bush, who previously said he was confident the bill would pass, said he was “very disappointed” by the House vote.

Speaking at the White House, Treasury Secretary Henry Paulson, said he will continue to "use all the tools available to protect" the economy.

The four-hour debate that preceded the Sept. 29 vote included impassioned pleas for and against the measure from Democrats and Republicans alike. Party leaders told members that the only way to protect the economy from a spreading credit crunch was to vote for the difficult-to-swallow measure.

The debate followed a weekend of marathon negotiations between lawmakers and administration officials to hammer out legislation.