The US House of Representatives has rejected a $700 billion Wall Street rescue plan.

The bail-out bill proposed by the Bush administration was defeated by 228 votes to 205.

The scheme would have given the Treasury Department up to $700 billion in buying power to acquire mortgage assets from troubled financial institutions.

In recent months, Wall Street giants like Bear Stearns and Lehman Brothers have failed while large commercial banks like Washington Mutual and Wachovia have been sold off at knock-down prices.

The bill was defeated after 133 Republican representatives ignored their leaders and voted against it. A majority of Democrats voted in favour of the plan and 95 voted against it.

Both parties blamed each other for the failure of the bill.

The chairman of the House of Representatives Financial Services Committee said Republican representatives "killed this bill", adding: "We would want to see what the economic reaction is before making any decisions on future legislation."

The stock market plummeted in response to the surprise defeat, with the Dow Jones index closing 777.68 points, or 6.98 percent, down to 10,365.45, its biggest daily percentage decline since the October 1987 stock market crash.

A White House spokesman expressed disappointment and said President George W Bush would meet his economic team before deciding on the next move.

Gordon Brown called the news "very disappointing".

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