US Congress looked close to reaching a deal to approve a $700 billion plan to bail out the US financial system and President George W Bush called an emergency meeting for Thursday to hammer out details.

The move toward a deal will likely calm US markets, which were in turmoil on Wednesday as negotiations dragged on.

Investors stampeded into cash and safe-haven assets, briefly sending short-term interest rates below zero. Experts said banks were hoarding cash, fearful that if they loaned money to other banks they might not get repaid.

But with a deal near, US stock futures were up about 0.5 percent after earlier being negative, suggesting a firmer open for Wall Street on Thursday. Asian stock markets also retraced earlier losses.

 Bush warned of a looming economic disaster if Congress failed to act swiftly to fund the $700 billion bailout that would be larger than the total cost of the Iraq war. Bush offered few details about the makeup of the emerging deal for a bailout.

US congressional Democrats and Republicans plan to meet on Thursday to draft a final bipartisan plan, a Democratic source told Reuters on Wednesday night.

"Not too many unresolved issues remain," the source said. Earlier on Wednesday, Senate Banking Committee chairman Christopher Dodd expressed optimism a deal was nearing.

"We're not there yet," Dodd told reporters, adding there was a "good possibility we'll get there in a day or so."    

Bush said he had called an emergency meeting with Democratic presidential candidate Sen. Barack Obama, his Republican rival Sen. John McCain and members of Congress to broker a deal. Obama accepted.

Moments after Bush spoke, powerful Democrat Rep. Barney Frank said it was "clear" a bailout bill will pass.

Bush used his televised speech to tell Americans there was little choice but to undertake the massive bailout. "I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances," Bush said.

"The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America's financial system are at risk of shutting down."    

If left unchecked, Bush said the problems in capital markets would reach far beyond big business and Wall Street,guarantee a long and painful recession and make it harder for Americans to get loans to buy cars or send kids to college.

Wrangling over the bailout overshadowed Berkshire Hathaway Inc's $5 billion investment in embattled Wall Street titan Goldman Sachs Group Inc, which is transforming into a traditional bank to shield itself from the crisis. Goldman's shares closed 6.4 percent higher.

"I am to some effect betting on the fact that the government will do the rational thing and act properly," Berkshire's Warren Buffett, one of the world's richest men and preeminent investors, told CNBC.

Earlier, McCain said he will break off from his campaign to return to Washington to help broker a deal, saying he feared legislation could not pass in its current form. The Arizona senator said he wanted to cancel Friday's presidential debate.

Obama indirectly accused McCain of playing politics and said the first of a series of planned presidential debates should go ahead. "What is important is that we don't suddenly infuse Capitol Hill with presidential politics," Obama said.

Many lawmakers have demanded changes to the bailout plan.

The changes include more protections for taxpayers and restrictions on executive pay at companies that unload their bad assets.

After a week of pointed barbs on the campaign trail, McCain and Obama later took the unusual step of issuing a joint statement, calling Bush's plan "flawed" but urging fellow Republicans and Democrats to<