US stocks rallied for the first time in three days as the US House of Representatives began debate Friday on a new version of the finance rescue plan that the White House says is desperately needed.

Wachovia Corp rallied as much as 80 per cent after Wells Fargo & Co, the biggest West Coast bank, agreed to buy the lender for about 15.1 billion dollars.

The US jobless rate remained steady at a rate of 6.1 per cent in September, unchanged from the month before, but non-farm payrolls have shed another 159,000 jobs and employment continued to fall in construction, manufacturing and retail trade, the US Department of Labour said Friday.

The broad-based Standard & Poor's 500 Index gained 26.97 points, or 2.42 per cent, to 1,141.25 at 1600 GMT in New York. The Dow Jones index of blue chips added 188.92, or 1.80 per cent, to 
10,671.77. The Nasdaq high tech composite index rose 53.64, or 2.71 per cent, to 2,030.36.

The credit crunch tightened even more on Friday, Bloomberg financial news service reported. The London interbank offered rate, or Libor, that reflects the cost of borrowing in dollars for three months, rose for a fifth day, from 4.21 per cent on Thursday to 4.33 per cent on Friday, the highest rate since January 11.

The Libor rise signalled continuing uncertainty in the all- important interbank lending system that fuels the commercial system.

US Secretary of Treasury Henry Paulson anticipates that credit will loosen up if Congress passes the emergency 700-billion-dollar financial rescue plan, under which the government will buy up mortgage assets that have gone sour and drained the system of credit.

A coalition of resistant Republicans and Democrats defied Congressional leaders and the lame duck US President George W Bush on Monday by voting down the first version of the rescue plan.

The financial crisis, kicked off by Lehman Brothers' bankruptcy on September 15, has played volatile havoc with stock markets which have risen and fallen by larger than normal percentage points along with day-to-day developments in Washington.