Stocks traded sharply higher at midday in anticipation of the bill's passage, but all of those gains were erased after the vote. See Market Snapshot.

The House's vote follows the Senate's approval on Wednesday and gives the Treasury secretary extraordinary power to buy bad assets from financial companies, boosts federal bank insurance and requires the government to modify some mortgages. It also contains a host of controversial tax breaks and some caps on executive pay.

House lawmakers voted 263 to 171 to pass the bill, reversing the chamber's rejection of it on Monday, which sent the Dow Jones Industrial Average into a record 777-point freefall.

House leaders were cautiously optimistic before the vote, but uncertainty over its fate lingered until the last minute. Many members said the bill wasn't perfect but that action was needed to get the flow of credit going again and to help taxpayers.

"If we don't act now, those who are least to blame for this mess will suffer the most," said Rep. Judy Biggert, R-Ill.

Democrats also warned that the economy would suffer without passage of the bill.

"We are facing an abyss," said Rep. Paul Kanjorski of Pennsylvania, who chairs a House Financial Services subcommittee on capital markets. "The urgency is clear," added House Speaker Nancy Pelosi. "We are addressing the real pain felt by Mr. and Mrs. Jones on Main Street," she said, in contrast to the Dow Jones Industrial Average and Wall Street.

Bush said that the ultimate cost to taxpayers would be lower than the $700 billion price tag but cautioned that the benefits wouldn't be immediate.

"It will take some time for this legislation to have its full effect on the economy," Bush said at the White House.

The core of the plan authorizes the Treasury secretary to buy as much as $700 billion in bad assets from financial companies in a bid to get credit flowing to consumers and businesses. It allows the Federal Deposit Insurance Corp. to raise its deposit-insurance cap to $250,000 from $100,000 and also requires government agencies to modify troubled mortgages. The bill allows regulators to suspend certain accounting rules for securities that some argue have contributed to the credit crisis.

Treasury Secretary Henry Paulson said Friday he will now work with the Federal Reserve and the FDIC to enact the new powers.

"We will move rapidly to implement the new authorities, but we will also move methodically," Paulson said in a statement. "Each situation will be different and we must implement these new programs with a strategy that allows us to adapt to changing circumstances and conditions, and attract private capital," said Paulson.

Fed Chairman Ben Bernanke said the bill demonstrates the government's commitment to support and strengthen the economy.

"The legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses," Bernanke said in a short statement Friday. He added that the central bank will use "all of the powers at our disposal" to mitigate disruptions in the credit markets and foster a strong economy.

Banking, financial and business trade groups hailed passage of the bill on Friday.

"This legislation represents a necessary solution to the crisis on Wall Street and in financial centers around the world, and it will ensure that credit is available to consumers and businesses on Main Street," said Edward Yingling, president and chief executive of the American Bankers Association. "It will provide the financial backstop needed to unfreeze the financial markets and provide for greater transparency and accountability for firms that participate in the program."