WASHINGTON, Oct 2, 2008 (AFP) - US senators passed a new 700-billion-dollar bailout of the debt-stricken financial system but failed to lift Wall Street's gloom Thursday while Europe appeared divided over how to battle the crisis.

US senators voted 74-25 to back an amended bailout, aiming to ease the credit crunch that has shaken the world economy, bankrupted Wall Street titans such as Lehman Brothers and hit banks around the world.

But while the outcome of Wednesday's vote lifted European markets, Wall Street stocks slumped in early trading amid new nerves over the package's fate in the House of Representatives, which rejected a first version Monday.

President George W. Bush called on the House to vote before the end of the week to avoid further damage to the US economy. But the bill's prospects were mixed.

'The American people expect and our economy demands that the House pass this good bill this week and send it to my desk,' Bush said.

The Senate sweetened the original deal, which gives the US Treasury the power to buy up toxic mortgage debt choking the financial industry, to court conservative Republicans who helped block the original version.

Senators raised the ceiling on federal insurance for bank deposits from 100,000 dollars to 250,000 dollars, and added up to 100 billion dollars in tax break extensions.

They also restricted 'golden parachute' severance payments to disgraced Wall Street executives.

Senior Democratic Senator Max Baucus predicted the changes would be enough to win passage in the House, probably Friday. 'I think we have turned the corner tonight,' he said.

But Democratic House Majority leader Steny Hoyer said the bill would only be brought to a vote if it was certain to pass.

Opponents of the bill in the House have expressed qualms about using vast amounts of taxpayer money to bail out Wall Street firms they blame for rash trading.

As market gloom persisted, some analysts said the package would do little to restore credibility to the US economy.

'It's like giving a massive blood transfusion to a person bleeding from an internal haemorrhage,' Nobel Prize-winning economist Joseph Stiglitz said in a speech in Vienna.

John Wilson, equity strategist at Morgan Keegan said the markets would only be reassured when the bill passes the House but emphasised that it was not guaranteed.

The Dow Jones Industrial Average sank 230.50 points (2.13 percent) to 10,600.57 at 1445 GMT.

Asian markets also fell. Japan's main share index, the Nikkei-225, closed down 1.88 percent, at a three-year low, on worries about the financial crisis.

But in Europe, London was up 0.69 percent, Paris had gained 0.36 percent and Frankfurt was flat.

European Commission president Jose Manuel Barroso welcomed the US Senate's backing of the plan as a 'step in the right direction', a spokesman said.

French President Nicolas Sarkozy's office confirmed the leaders of Europe's main economies -- Britain, France, Germany and Italy -- would meet Saturday in Paris to coordinate their response.

But the build-up to the Paris talks has revealed a split on how to protect the banking sector, with Germany dismissing calls for a joint European fund to bail out failing banks.

Sarkozy told reporters that France had not suggested a 300-billion-euro (417-billion-dollar) fund and the finance ministry insisted publicly that neither the figure nor the idea had come from them.

Nevertheless, a European official in Paris confirmed that France had not ruled out a large-scale bail-out, despite opposition from Britain and Germany.

On a visit to Paris, Dutch Prime Minister Jan Peter Balkenende said his government wanted EU countries to agree a common strategy to set aside three percent of their gross national product to aid faltering capital markets. If carried out that would create a pool of more than 350 billion euros.

After an all-night parliament session, Irish lawmakers passed a controversial emergency law guaranteeing bank deposits, despite protests from other European countries.

Britain has argued that the guarantee, covering Ireland's six main banks, is unfair amid fears of a surge in savings from British banks into Irish deposit accounts.

Russian President Dmitry Medvedev said the crisis had shown the era of US financial dominance was over and it was time to forge a new economic system.

'The time of domination by one economy and one currency has been consigned to the past once and for all,' Medvedev said after talks with German Chancellor Angela Merkel.