At the end of only his second full week in office, US President Barack Obama’s administration ran up against Washington’s unforgiving politics, as two key government nominees withdrew under a cloud of tax problems.

Key lawmakers who struck a post-midnight deal on a 700bn (€479bn) for the financial industry tonight predicted it would pass Congress, putting in place the largest US government intervention in markets since the Great Depression of the 1930s.

Congressional leaders and the Bush administration reached a tentative deal early today on a landmark bailout of imperilled financial markets whose collapse could plunge the nation into a deep recession.