NEW YORK (Reuters) - The White House's proposed $700 billion financial bailout met skepticism and anger from lawmakers on Wednesday, stoking fresh anxiety on Wall Street despite a $5 billion Wall Street investment by billionaire Warren Buffett that was hailed as a vote of confidence.

Federal Reserve Chairman Ben Bernanke offered his bleakest outlook since a credit crisis set in last year, saying global markets were under "extraordinary stress" and threatening an already weak U.S. economy.

"Action by Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy," he said on the second day of congressional testimony aimed at persuading the U.S. Congress of the need for a vast bailout.

Sen. Charles Schumer said top Democrats in Congress were committed to passing some sort of emergency measure before lawmakers adjourn in the next few days.

But lawmakers have made clear they would not approve the proposal without changes, including more protections for taxpayers and restrictions on the pay of executive at companies that unload their bad assets.

"I suspect it's true of every one of my colleagues. (They) are not just against this bailout, they're very angry," Rep. Lloyd Doggett, a Texas Democrat, told Bernanke.

As Bernanke spoke, new data showed existing home prices suffering a record drop in August, adding to concerns over a rising tide of home foreclosures and loan defaults that has spawned the worse financial crisis since the Great Depression of the 1930s.

But with many members of Congress up for re-election, lawmakers are reluctant to merely rubber-stamp the Bush administration's rescue plan at a time when the financial turmoil is the top campaign issue in the tight November 4 U.S. presidential and congressional races.

Bernanke ticked off areas of the economy that are struggling in a month of turbulence marked by the government's takeover of mortgage companies Fannie Mae and Freddie Mac, the bailout of insurer American International Group Inc, and the bankruptcy filing of investment bank Lehman Brothers Holdings Inc.

"Economic activity appears to have decelerated broadly," Bernanke warned. Labor markets are weak and unemployment is high, he said. Despite an easing of oil and gasoline, consumer spending is likely to be sluggish in the near term, he added.

The head of the Congressional Budget Office, Peter Orszag, warned lawmakers of possible "chaos" if Congress does nothing. "You would have a financial market meltdown that would cause very severe dislocations ... maybe on the magnitude of the Great Depression.