Henry Paulson, the US Treasury Secretary, yesterday urged the American Congress to act precipitously and pass a $700bn bailout package before greater carnage befalls the global financial system.

Paulson also said that the US credit markets remained frozen - in effect, warning that businesses will continue to fail because they cannot get the loans they need to operate and the economy will grind to a halt because consumers, who account for two-thirds of all US economic activity, will not be able to get the credit they need to keep spending.

The past week alone has witnessed extraordinary, see-sawing global stock markets - flailing back and forth between fear and greed - and panic that further financial failures will follow Lehman Brothers filing for bank- ruptcy, Merrill Lynch selling itself to Bank of America and the $85bn bail-out of the insurance behemoth AIG.

In the UK last week, the turmoil culminated in the Lloyds TSB £12.2bn deal to acquire collapsed Halifax Bank of Scotland.

At the same time, Morgan Stanley and rival Goldman Sachs, the largest surviving independent Wall Street investment banks, have been drawn into a crisis of investor confidence and are now facing concern that the credit crunch could constrict the short-term funding on which they have traditionally rely.

But it is not just the banks that have been bloodied. Increasing numbers of households are having trouble paying their mortgages and unemployment is rising on both sides of the Atlantic and across Europe.

"We need to deal with this and deal with it quickly," Paulson said.

The plan to stem the worst global financial storm since the Great Depression would allow the US Government to buy hundreds of billions of dollars' worth of bad mortgages, so-called toxic assets, from financial institution operating in the US for the next two years.

Congress aims to get the bill signed by the end of the week.

Some analysts and US politicians yesterday claimed the would end up costing more like $1 trillion rather than $700bn when the costs of the government taking over mortgage giants Fannie Mae and Freddie Mac and insurance giant American International Group were added.

Nonetheless, Royal Bank of Scotland and Barclays are likely to be among the beneficiaries if the proposal comes to fruition. Royal has significant business in the US through subsidiaries Citizens Financial and Greenwich Capital, and has taken a near-£6bn write down this year on its billions of pounds worth of credit crunch-related assets.

While the three-page bill proposed by Treasury said participating financial firms would have to be headquartered in the US, Paulson said that even foreign firms should be able to unload assets if they have large operations in the US.

"If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

The Treasury chief did confirm that hedge funds - blamed by many for exacerbating the financial crisis - would not be eligible.

Meanwhile, a Congressional passing of the rescue package would also likely ingite stock markets around the world - at least temporarily.

London's FTSE-100 Index posted its biggest-ever one-day gain on Friday of nearly 9%, with banks such as Barclays, Lloyds TSB and Royal Bank of Scotland surging more than 20% in market value on news of the bailout proposal.

Although the fine details of the rescue package have yet to be worked out, Paulson took his case to American television yesterday and said the bailout was necessary to prevent further damage to the already fragile US economy.

Paulson, who would have sweeping powers over the massive war chest, appeared on four national US talk shows yesterday to make his case that the consequences of inaction would be so dire that the large burden taxpayers would shoulder would be worth it.

"This is not something that we wanted to do. This was something that was very necessary," Paulson said on one television programme yesterday.

"We did this to protect the taxpayer."

Paulson also said the US authorities were pressing other governments to take similar actions, although a UK Treasury spokesman yesterday said Britain was not working on a similar US-style solution.

The US Treasury Secretary added: "We have a global financial system and we are talking very aggressively with other countries around the world, and encouraging them to do similar things, and I believe a number of them will," he said on another programme later in the day."

Yet the question remained that if it all comes to pass - if the US were to become a repository for the radioactive leftovers of bad property bets - will the crisis dispel?

If the plan works, it will attack the central cause of US economic distress and the consequent global financial turmoil - the continued plunge in US housing prices.

Paulson added: "This is a humbling experience to see so much fragility in our capital markets, and ask how did we ever get here.

"I'm confident Congress will move and move quickly."

However, key Democrats yesterday argued that the legislation needed changes to provide better protections for taxpayers and homeowners in danger of losing their homes, before such a package were approved.