Optimism rose last night that a line might soon be drawn under the worst of the global credit crisis after US lawmakers approved the Bush Administration’s $700 billion (£395 billion) bailout plan for American banks and hopes of cuts in interest rates in leading economies rose sharply.

Investors around the world breathed a sigh of relief as the US House of Representatives voted through the unprecedented bailout scheme after two weeks of haggling in Congress that had fuelled financial convulsions worldwide and deepened the crisis.

Markets also drew confidence from mounting expectations that interest rates in Britain, the eurozone and the United States might all soon be cut significantly as the main central banks weigh in behind Washington’s attempts to prevent the financial crisis and money market seizures escalating into global recession.

Warren Buffett, the billionaire investor, said that the rescue plan “will be a great help” if “not a panacea” in stemming global financial turmoil.

Yet the revival in spirits among investors after the vote on Capitol Hill was tainted by fear as the main driving force behind hopes of falling global interest rates came from a deluge of grim figures that suggested that the credit crunch is driving Western economies into a severe downturn.

In a reflection of those increased anxieties over world economic prospects, US stock markets tumbled again last night, despite the approval for the bailout plan. The Dow Jones industrial average closed down 157.50 points at 10,325.40 and the S&P 500 was down 15.05 at 1,099.25.

In London, a Reuters poll showed that a majority of City economists were betting that the Bank of England would cut interest rates next week for the first time since April, with some pencilling-in a drastic half-point cut to 4.5 per cent, after stark evidence emerged that Britain was already in the grip of a new recession.

Britain’s services sector, the power-house of the economy that accounts for three quarters of GDP, shrank last month at its fastest pace for at least 12 years, according to a key survey.

Overall activity among services businesses fell at the sharpest rate since at least 1996 as both outstanding and new business in the sector dropped to levels not seen since then, the CIPS/Markit survey of conditions showed.

After the CIPS manufacturing survey this week also showed industry in its frailest state since 1992, analysts said that a sharp recession was now a serious danger and scrambled to bet on a cut in borrowing costs next week.

The Bank of England yesterday joined the Financial Services Authority in new measures to protect savers and the banking system and to unclog seized money markets that threaten further instability.

As money market stresses were high-lighted by further steep increases in the cost to banks of borrowing three-month funds from each other, the Bank said that it would accept for the first time securities linked to high-grade loans to companies by banking groups as security for three-month funding.

The FSA, the City regulator, meanwhile moved to bolster confidence in Britain’s banks among savers by raising the official amount of customers’ deposits guaranteed by the state in each bank to £50,000. The moves came as the seizure in interbank loan markets was emphasised by a jump in the cost of three-month dollar borrowing between banks to 4.33375 per cent, the highest since January, while the equivalent rate for borrowing three-month euros hit a record.

In America, hopes in the markets that the Fed might follow expected early moves by Bank of England and European Central Bank to cut interest rates were also fuelled by bleak news from the US jobs market and services sector. Employment in the United States suffered its sharpest fall for 5½ years last month, with 159,000 jobs lost, while an Institute of Supply Management survey showed that the US services sector is close to stalling.

In the eurozone’s 15-nation economy, the services sector is already contracting and slumped last month at its fastest rate in five years, a further purchasing managers’ survey showed.

The ECB signalled this week that it was poised to cut interest rates as soon as next month.

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