By John Whitesides, Political Correspondent

NASHVILLE, Tennessee (Reuters) - Republican John McCain and Democrat Barack Obama battled over taxes at their second presidential debate on Tuesday but agreed middle-class workers are fearful about their economic future and need quick and lasting help.

With U.S. financial institutions reeling under what Obama called the worst crisis since the Great Depression, the presidential rivals differed on their approach to healing the economy.

"Americans are angry, they're upset and they're a little fearful," McCain said in the debate at Belmont University in Nashville, Tennessee, four weeks ahead of the November 4 election. "We don't have trust and confidence in our institutions."

McCain proposed a new government program, to be run by the Treasury Department, which would buy mortgages from homeowners facing financial problems and replace those mortgages with new, fixed-rate mortgages.

The McCain campaign said the program would cost roughly $300 billion. Democrats in Congress for months have been calling for legislation to help families facing home foreclosures.

Obama said middle-class workers, not just Wall Street, needed a rescue package that would include tax cuts. Obama said the U.S. government should ensure Wall Street executives do not benefit from bonus payments from failing companies.

"We are in the worst financial crisis since the Great Depression, and a lot of you I think are worried about your jobs, your pensions, your retirement accounts," he said.

McCain portrayed Obama as an eager supporter of higher taxes who was unwilling to buck his own party, while Obama said McCain's policies would help the wealthy and strand workers at the bottom of the economic ladder.

"NAILING JELLO"

"Nailing down Senator Obama's various tax proposals is like nailing Jello to the wall," McCain, an Arizona senator, said.

Obama responded with a crack about McCain's campaign bus.

"The Straight Talk Express lost a wheel on that one," he said. He said his plan would only tax those making more than $250,000 a year, and most small businesses would not be affected.

He also has a proposal for a tax cut that he said would cover 95 percent of Americans.

Obama has solidified his national lead in polls ahead of the November 4 election and gained an edge in crucial battleground states in recent weeks as the Wall Street crisis focused attention on the economy, an area where polls show voters prefer the Illinois senator's leadership.

The economic turmoil continued on Tuesday, with stocks tumbling for the second consecutive day in a sign the $700 billion bailout of U.S. financial institutions did not ease market concerns about the economy.

Asked about a possible Treasury secretary under their administrations, both candidates mentioned Omaha's legendary investor Warren Buffett, a supporter of Obama.

The debate featured little of the anger and aggressive attacks that have been featured on the campaign trail in the last week.

Polls judged Obama the winner of the first debate two weeks ago, but Tuesday's debate was conducted in a looser town hall format where questions were asked by the audience -- a favorite setting for McCain and a staple of his campaigns in the battle for the party nomination this year and in 2000.

About 100 undecided Nashville voters identified by the Gallup polling company posed the questions. The candidates sat on stools and were free to roam the stage.

(Editing by David Wiessler)