US authorities bolstered their arsenal overnight to battle the financial market storm, readying a massive rescue plan worth hundreds of billions of dollars, fueling a powerful market rebound.
"This is a pivotal moment for America's economy,'' President George W Bush said , as US officials began acting on a series of government steps.

Mr Bush said that the US government "should interfere in the marketplace only when necessary'' but that "given the precarious state of today's financial markets, and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential.''

Full details of the plan were not released by Mr Bush, but he said it would allow "the federal government's purchase of illiquid assets such as troubled mortgages from banks and other financial institutions.''

Wall Street remained on alert late Sunday as hopes for a buyout of beleaguered Lehman Brothers faded and following extensive efforts by both executives and regulators to stave off a broader financial crisis.

As the weekend drew to a close, the Federal Reserve announced plans to expand its lending to the banking industry in an effort to calm the markets. In addition, a consortium of 10 top domestic and foreign banks agreed to create a $70 billion fund that would serve as a lifeline for troubled financial firms.

The fate of Lehman, following weeks of speculation about its health, appeared grim after Bank of America (BAC, Fortune 500) and British bank Barclays (BCS), both viewed as potential "white knights," pulled out of deal talks as of Sunday afternoon, according to sources.

A Lehman executive, who declined to be identified, told Fortune "this looks like the end."

Instead, Bank of America was reportedly in merger talks with Merrill Lynch (MER, Fortune 500), according to news reports. Both the Wall Street Journal and the New York Times reported that a deal, which could be worth about $40 billion, could come as early as Sunday night.

Hours before Bank of America pulled out, Barclays had abandoned talks to buy Lehman (LEH, Fortune 500), a source close to the situation told CNNMoney.com.

Top Wall Street officials and federal regulators, who began meeting Friday, spent much of their Sunday at the Federal Reserve Bank of New York in the hopes of devising a plan to save Lehman and allay fears that threatened to roil U.S. financial markets Monday.

Meanwhile, broader efforts to tackle problems plaguing the entire industry are underway.

The Federal Reserve announced a series of steps to support the financial markets. The Fed said it would expand its short-term lending to banks by starting to take all investment-grade debt as collateral - instead of just Treasurys and other high-grade securities.

"The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets," said Fed Chairman Ben Bernanke.

Similarly, a group of 10 commercial and investment banks including, among others, Goldman Sachs (GS, Fortune 500), Citigroup, Barclays and Morgan Stanley, agreed to pony up $7 billion each to create a $70 billion lending facility that institutions facing liquidity issues could tap.

The measure would also help resolve exposure between Lehman Brothers and its counterparties, the companies said.

Treasury Secretary Henry Paulson, who has led efforts to help get the U.S. housing market and the broader economy back on track, applauded the plan and steps taken by regulators.

"These initiatives will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets," Paulson said in a statement.

Yet the last-minute efforts provided little comfort to financial markets around the globe. As of Sunday evening, U.S. markets were headed for a steep selloff at the start of Monday's session.

Futures in the Dow Jones industrial average, as well as the broader Nasdaq composite and the Standard & Poor's 500 were as much as 3% lower, before paring some of their losses.

Investors already started piling into safe-haven Treasuries as the yield on the benchmark 10-year note dipped to 3.565% from 3.72% late Friday.

That nervousness also spread to the currency markets as the dollar eased against both the euro and the yen.

Adding to those concerns was news that insurance giant AIG (AIG, Fortune 500) planned to unveil a restructuring plan that will include the sale of part of its business to raise cash and boost investors' confidence, according to a published report.

Investors are also likely to await more data about troubled savings and loan Washington Mutual (WM, Fortune 500), which sought to provide assurance about capital levels on Thursday.

What could help temper a market selloff is the widely-anticipated Bank of America-Merrill deal, said one expert.

"This sort of offsets the Lehman thing," said Dan Alpert, managing director of the boutique New York City-based investment bank Westwood Capital. "But the reality is that it is just a short-term impact."

Lehman dark and light
Still, much of the market's focus ahead of Monday was on the endgame for Lehman. The hope is that some solution can be agreed upon by early Monday morning in the U.S. - before financial markets open in Europe. Most Asian markets are closed for a holiday Monday.

But the abandonment of Barclays and Bank of America left a Lehman Brothers bankruptcy a very real threat. As of Sunday evening, the Wall Street firm was reportedly on the verge of filing for protection.

Separately, the International Swaps and Derivatives Association staged a special trading session so that big brokers could limit their Lehman Brothers risks.

The session was called "to reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy," according to a statement on the ISDA's Web site.

Lehman - one of the nation's largest and oldest investment banks - has suffered a dramatic and rapid descent. Its shares, which sold for as much as $67 in the past 12 months, have plummeted 94% this year and now trade at $3.65.

In the past six months, the company has reported $6.7 billion in losses due largely to bad bets on real estate. At the same time, concern is growing about problems throughout the financial sector.

Research and Markets has announced the addition of the "Impact of the Credit Crunch on UK Mortgage Product Structures" report to their offering.

The severe repercussions from the US sub-prime crisis have been felt in most of the worlds economies, but none more so than Western Europe, and in particular the UK.

The effects of this lack of liquidity have turned the UK mortgage market on its head, and lenders are now making sweeping changes to product structures in an effort to stabilize their product portfolios in the turmoil.

The first quarter of 2007 saw 503,000 mortgage deals written for a total of GBP84 billion. In the first quarter of this year, approximately half that number were written, while the value of mortgage deals dropped by almost GBP10 billion to GBP75 billion.

The market has decreased steadily since June 2007, but the largest drop occurred in 2008, resulting in a cut of almost 800 mortgage offers from the market.

Although it is unlikely to recover to pre-credit crunch levels, the mortgage market needs to stabilize in order for a traditional and affordable mortgage product structure to resurface.

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THE Reserve Bank of Australia (RBA) governor Glenn Stevens says the central bank did not get it wrong when it hiked interest rates earlier this year, rejecting claims it went too far in its fight against inflation.

Mr Stevens said the RBA board's credentials would have been in questionable if it had not acted when all the evidence at the time was pointing to inflation rising.

"I don't think the board had got it wrong,'' he told a House of Representatives Economics Committee hearing today in Melbourne in response to a question.

"I doubt very much we could have credibly just sat there with what inflation was doing.''

"On the information we had then on the assessment on the risks that we could make then and even looking back those moves were correct.''