The US Government has torn up plans to use part of its $700 billion bailout package to acquire banks' toxic debts in favour of sinking resources into a mass capital rescue of stricken lenders and other financial businesses.

Henry Paulson, the US Treasury Secretary, said today that America's Troubled Asset Relief Program (Tarp) would also look at potential bailouts outside the financial sector, raising hopes that the Government will make funding available to the country’s struggling car industry.

President-elect, Barack Obama, used this week’s meeting at the Oval Office to press President Bush for immediate aid for US car-makers.

General Motors, America’s largest car manufacturer, reported a $2.5 billion net loss for the third quarter, bringing its total losses to nearly $57 billion since the beginning of 2005.

Ford Motor Company’s $129 million quarterly loss, meanwhile, brought its deficit to nearly $24.5 billion since plunging into the red in 2006.

For the moment, Mr Paulson said the Treasury would limit its interventions to the financial system, but today's policy shift makes it more likely Government will get involved if necessary.

"The non-bank consumer finance sector continues to face difficult funding issues," Mr Paulson said.

Today’s move away from buying lenders’ toxic assets sees the US proposals closely mimic efforts made by the UK, which has unveiled plans to bail out or nationalise institutions including Royal Bank of Scotland, HBOS and Lloyds TSB.

"Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets," Mr Paulson said.

"Our assessment at this time is that this is not the most effective way to use Tarp funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of Tarp resources, in helping to strengthen our financial system and support lending.

"But other strategies I will outline will help to alleviate the pressure of illiquid assets."

The volte-face marks a shift in emphasis by the American authorities, which allowed Lehman Brothers to collapse but bailed out AIG, the insurer, in a rescue worth $150 billion.

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