US 'will not buy bad bank debt'

US Treasury Secretary Henry Paulson has said authorities had abandoned plans to use part of a $700bn rescue package to buy up banks' bad debts.

He said they would continue to buy shares in banks to boost their funding, adding the extra money had already "clearly helped stabilise" the financial system.

He announced a new direction for the programme and outlined three 'critical priorities' including supporting financial markets which supply consumer credit such as credit card and car loans.