NEW YORK (Reuters) – Architects of a $700 billion bailout plan urged US lawmakers to act swiftly or face dire economic consequences as global stock markets fell for a second day on growing concern the rescue may be delayed.

Treasury Secretary Henry Paulson told lawmakers during five hours of gruelling hearings yesterday that the bailout was "sad" and "embarrassing," but needed to stave off a deep recession and restore confidence in markets.

While he spoke, the Federal Reserve was forced to inject another $2 billion into the troubled financial system to help mutual funds scrambling to raise cash to meet heavy withdrawals by rattled customers.

After lawmakers scoffed at the proposed bailout's enormous size and the lack of details, US stocks closed down about 1.5 percent on the lack of certainty over when and how Washington would act.

House Financial Services Committee Chairman Barney Frank warned the plan might not pass until Monday, adding that the Democrat-controlled Congress needed limits on compensation for executives of firms offloading bad assets.

"I just don't think the American public is sold," said David Dietze, chief investment officer at Point View Financial Services in Summit, New Jersey. "They are sceptical of the need, and they are fearful of the cost."

"The scepticism is that this is going to help the Wall Street financiers and do nothing for the little guy other than saddle them with a big tax bill," he said.

The financial crisis has become the top issue leading up to the November 4 presidential election, and many lawmakers seeking re-election to Congress want to appear vigilant.

The bailout, potentially the United States' biggest ever, could cost every American man, woman and child $2,300.

Even for the world's richest country, $700 billion would be a huge budget drain. Since 2003, the Iraq war has cost about $550 billion, or a little more than $100 billion annually.

At the start of two days of hearings, Paulson and Federal Reserve Chairman Ben Bernanke said the plan might cost less once the government is able resell toxic mortgage securities.

Paulson said the government would buy the securities in a reverse auction in which the roles of buyer and seller are reversed to ensure the lowest price is paid.

Meanwhile, the transformation of global finance pressed ahead as Japan's largest brokerage agreed to buy bankrupt investment bank Lehman Brothers' European arm.

US Securities and Exchange Commission Chairman Christopher Cox urged Congress to plug a regulatory hole in the $58 trillion market for credit default swaps, insurance-like products that many say pose a systemic risk.

President Bush promised in his last speech to the United Nations that markets would stabilise but faced criticism over the excesses of what some have described as a culture of greed.

Paulson, a former Goldman Sachs boss reportedly worth about $700 million, told Congress, "I share the outrage that people have. It's embarrassing for the United States of America."

Sen. Charles Schumer, a New York Democrat associated with Wall Street's interests, pressed Paulson on if he could take the money in installments, starting with $150 billion.

Paulson replied bluntly: "We need the full authority.

"What this is about is market confidence," he said. "It's a sad story, but the American taxpayer is already on the hook."

Congress and the Bush administration are under growing pressure to act following a rising tide of US home foreclosures and loan defaults, the failure of US investment banks as well as the world's largest insurance company.

Some experts doubt Paulson and Bernanke can end America's worst crisis of confidence since the 1930s' Great Depression.

"(They) have been wrong about nearly everything since this crisis began years ago," said Barry Ritholtz, director of research at New York investment firm Fusion IQ. "Why should we trust (their) judgment on the largest bailout in American history?"

With the elections looming, executive compensation is a hot-button issues, and appears to be the main bone of contention as Washington crafts the bailout.

Goldman Sachs Group Incpaid chief executive Lloyd Blankfein about $54 million last year. Wall Street's last two independent banks, Goldman and Morgan Stanley, got approval days ago to convert to banks to shelter them from the crisis.

Merrill Lynch & Co Incboss John Thain was paid $15 million to join the company last year. He could get another $10 million when Merrill's sale to Bank of America Corp goes through — a sale prompted by Merrill's troubles.