Paulson fears that even more US banks may fail

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Mr Paulson said the financial turmoil in international markets had "seriously impacted" the US economy and that even the $700 billion bank bail-out, enacted via an Emergency Economic Stabilisation Act, might not be enough to save all institutions. He said: "The Act doesn't exist to save every financial institution."

Mr Paulson added that economic momentum has slowed "substantially across the industrialised countries" because of the financial turmoil, and said that he would be discussing ways to tackle the continuing instability at a meeting in Washington of the G7 finance ministers.

His remarks follow a warning by the International Monetary Fund that the world is heading for a major economic downturn. It said that both Europe and the US were already either in or on the brink of recession as the world was hit by "the most dangerous shock since the Thirties".

In the US, news of Britain's £500 billion bank rescue package was greeted with enthusiasm with some commentators and observers suggesting that the American authorities should follow suit with a similar scheme.

Among the endorsements was one in the Wall Street Journal, which declared: "The measures announced by the UK represent intellectual progress and offer the most sensible plan to date."

New York Times columnist Paul Krugman said: "Readers ask what I think should be done about the financial crisis. The answer is, what Gordon Brown is doing in Britain."