Republicans and Democrats blamed each other for the defeat of a US$700-billion bailout plan Monday, as the Dow Jones plummeted to its biggest point-drop in history.

After the markets closed, the Dow had fallen a staggering 777.68 points to finish at 10365.45 - surpassing the previous worse point-drop in 2001 of about 684 points.

In total, 228 members voted against the deal, compared to 205 who supported the bailout plan -- the most sweeping government intervention in markets since the Great Depression.

"I'm very disappointed by today's vote," U.S. Treasury Secretary Henry Paulson said after the markets closed. "The leaders of both sides and I had worked very hard. I've spoken to them, and I know they share my great disappointment."

Members from both the Democratic and Republican camps voted against the proposal, but most of the "No" votes came from Republicans. In total, 140 Democrats and 95 Republicans voted for the bill, while 133 Republicans and 65 Democrats voted against it.

Sen. John McCain, the Republican presidential nominee, spoke briefly about the need for a bailout plan but did not respond to questions from reporters.

"Now it's time for all members of Congress to get back to the drawing board," he said. "I call on Congress to get back, obviously immediately, to address this crisis."

Pelosi's speech

Some Republicans suggested the vote failed because of a speech by House Speaker Nancy Pelosi that blamed the crisis on the Bush administration, noting they had expected another 12 members to vote yes.

Rep. Barney Frank, a Democrat, openly mocked the idea.

"There were 12 Republican members who were ready to stand up for the economic interests of America, but not if anybody insulted them? I'll make an offer. Give me those 12 names, and I will go talk uncharacteristically nicely to them," Frank said to laughs from the press. "I'll tell them what wonderful people they are."

The House of Representatives will now reconvene on Thursday.

A White House spokesperson said U.S. President George Bush, who has called on Congress to pass the plan, was "very disappointed" with the outcome.

"There's no question that the country is facing a difficult crisis that needs to be addressed," spokesperson Tony Fratto said, adding Bush would be meeting with members of his team to determine the next steps.

Stocks on Wall Street and in Toronto plummeted immediately after the vote.

The original bill will have to be amended at the committee level and brought back before Congress before another vote can occur, said CTV's Washington Bureau Chief Tom Clark

"The effort now is to bring the bill back, in other words re-vote on the bill. But it can't be exactly the same bill, something about it is going to have to change," Clark told CTV Newsnet.

"The Republican leadership is already exhorting its members saying, 'Look, this bill is distasteful, the whole direction is distasteful, but we've got to do it.'"

Legislators began meeting immediately to decide what the next step would be.

The deal has been under intense discussions since last week, with legislators negotiating late into the night Sunday before they came up with a tentative agreement.

If passed, it would have allowed the federal government to purchase mortgage-banked assets from struggling lenders, once again giving them the ability to offer loans, stimulating the economy and helping head off a recession.

Bush had urged Congressional leaders to sign off on the plan before the markets opened on Monday.

"Every member of Congress and every American should keep in mind that a vote for this bill is a vote to prevent economic damage to you and your community," Bush said of the emergency rescue bill.

"With this strong and decisive legislation we will help restart the flow of credit so American families can meet their daily needs and American businesses can make purchases, ship goods and meet their payrolls."

Wachovia takeover

Meanwhile Monday, the uncertain U.S. financial market has claimed another victim with the takeover of Wachovia Corp.

The massive lender will be absorbed by Citigroup, which will accept US$42 billion in losses from the company's $312 billion loan portfolio as part of the deal.

The U.S. Federal Deposit Insurance Corp. brokered the deal and will take on any further losses, and Citigroup will issue $12 billion in preferred stocks and warrants to the agency.

The move makes Citibank the third largest U.S. bank.

The deal follows the collapse of Washington Mutual Inc. which was seized by the federal government last week.