Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor. "No" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill.
Mr. Bush and leading congressional figures had implored the lawmakers to pass the legislation despite protest from their constituents back home, but ample no votes came from both the Democratic and Republican sides of the aisle.
Voting yes were 140 Democrats and 65 Republicans; voting no were 95 Democrats and 133 Republicans.
A White House spokesman said that President Bush was "very disappointed."
"There's no question that the country is facing a difficult crisis that needs to be addressed," Tony Fratto told reporters. He said the president will be meeting with members of his team later in the day "to determine next steps."
Lawmakers shouted news of the plummeting Dow Jones industrial average as lawmakers crowded on the House floor during the call of the roll, which dragged on for roughly 40 minutes as leaders on both sides scrambled to corral enough of their members to support the deeply unpopular measure.
"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it -- not me.' "
Fear in the financial markets sent the Dow Jones industrials down 700 points at one juncture. As the vote was shown on TV, stocks plunged as investors worried that the financial system would keep sinking under the weight of failed mortgage debt. The decline was about 740 points shortly before the close of the trading day.
The overriding question for congressional leaders remains what to do next. Congress has tried to adjourn so that its members can go out and campaign. And with only five weeks left until Election Day, there was no clear indication of whether the leadership would keep them in Washington, D.C. Leaders were huddling after the vote to figure out their next steps.
"We are ready to continue to work on this," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat.
Treasury spokeswoman Michel Davis said Monday Secretary Henry Paulson would consult with President Bush, Federal Reserve Chairman Ben Bernanke and congressional leaders on what next steps to take.
There was even further sign of general economic deterioration Monday as the Commerce Department reported consumer spending unchanged in August, worse than the 0.2 percent gain economists had anticipated. It was the weakest showing since February.
Key supporters of the bailout package prodded lawmakers to approve the plan hours ahead the difficult vote, with President Bush saying it is needed to "keep the crisis in our financial system from spreading throughout our economy."
"Every member of Congress and every American should keep in mind that a vote for this bill is a vote to prevent economic damage to you and your community," Mr. Bush said.
The 110-page bill was released Sunday evening after a final weekend of intense negotiating, and Republicans and Democrats huddled for hours in private meetings Sunday night to learn its details and voice their concerns.