Global shares have fallen sharply on fears over the state of the US economy, with the Dow Jones index closing at its lowest level in two years.
The Dow closed below 11,000 for the first time since July 2006 while London's FTSE 100 index closed at its lowest point since October 2005.
Stock markets also fell across mainland Europe and Asia.
Sharp falls were also seen in the price of oil, which at one point fell $10 a barrel on expected lower crude demand.
In highly volatile trading, a barrel of US light crude fell below $136, having earlier risen above $146, and eventually settled down $6.44 at $138.74.
The Dow Jones index, meanwhile, closed down 92.65 points, or 0.8%, at 10,962,54, with banks stocks particularly weak.
Analysts blamed mounting concerns about the health of US financial institutions and the possible global fall-out for the market unrest.
'Sapping confidence'
The trigger for the latest slide in share prices was news that the US government had taken steps to protect mortgage firms Freddie Mac and Fannie Mae., which guarantee nearly half of all US mortgage debt.
Markets had initially steadied as traders absorbed the details of the US move, following the collapse of another lender, IndyMac.
But while the plan was well received at first, analysts say optimism faded as investors focused on more negative issues and feared that shareholders of the two firms could lose out should the government step in to buy more shares.
Oil seesawed in trading, reflecting worries about the US economy
Shares in Fannie Mae and Freddie Mac both fell by more than 26% as US Treasury Secretary Henry Paulson said any government support for them would be done in a way that would "protect the US taxpayer".
Worries spread to other financial stocks with the likes of Citigroup, Bank of America and American Insurance Group all suffering steep falls.
"The weakness was concentrated in financials and it seemed like, despite the testimony from Bernanke and Paulson, skepticism remains related to all the credit issues," said Alan Gayle, from Trusco Capital Management.
Economic difficulties
In testimony to the Senate Banking Committee, Federal Reserve chairman Ben Bernanke said the economy was being confronted by "numerous difficulties" including persistent strains in financial markets, rising joblessness and housing problems.
Earlier, figures showed a sharp increase in wholesale inflation and weak retail sales.
In the UK, the FTSE 100 dropped 2.4% to its lowest close since October 2005 - with bank Royal Bank of Scotland and Carphone Warehouse among the biggest fallers.
The financial sector in Germany was also hit where the Dax index lost 1.9% and hit its lowest point since October 2006.
Meanwhile France's Cac 40 index ended 1.9% on the day, its worst finish in more than three years.
Earlier, a sell-off in Asia hit Hong Kong's Hang Seng index, which fell 3.8%, while Japan's Nikkei 225 index slid 2% and Chinese shares fell 3%.
Of the Asian losses, banks were the hardest hit as investors worried that US financial market woes would spill over to Asia.
The Nikkei 225 - which has lost 11% of its value in the past month - fell to its first sub-13,000 points close since 15 April.
India's main Sensex stock index, meanwhile, lost 4.9% in Mumbai.
The Dow closed below 11,000 for the first time since July 2006 while London's FTSE 100 index closed at its lowest point since October 2005.
Stock markets also fell across mainland Europe and Asia.
Sharp falls were also seen in the price of oil, which at one point fell $10 a barrel on expected lower crude demand.
In highly volatile trading, a barrel of US light crude fell below $136, having earlier risen above $146, and eventually settled down $6.44 at $138.74.
The Dow Jones index, meanwhile, closed down 92.65 points, or 0.8%, at 10,962,54, with banks stocks particularly weak.
Analysts blamed mounting concerns about the health of US financial institutions and the possible global fall-out for the market unrest.
'Sapping confidence'
The trigger for the latest slide in share prices was news that the US government had taken steps to protect mortgage firms Freddie Mac and Fannie Mae., which guarantee nearly half of all US mortgage debt.
Markets had initially steadied as traders absorbed the details of the US move, following the collapse of another lender, IndyMac.
But while the plan was well received at first, analysts say optimism faded as investors focused on more negative issues and feared that shareholders of the two firms could lose out should the government step in to buy more shares.
Oil seesawed in trading, reflecting worries about the US economy
Shares in Fannie Mae and Freddie Mac both fell by more than 26% as US Treasury Secretary Henry Paulson said any government support for them would be done in a way that would "protect the US taxpayer".
Worries spread to other financial stocks with the likes of Citigroup, Bank of America and American Insurance Group all suffering steep falls.
"The weakness was concentrated in financials and it seemed like, despite the testimony from Bernanke and Paulson, skepticism remains related to all the credit issues," said Alan Gayle, from Trusco Capital Management.
Economic difficulties
In testimony to the Senate Banking Committee, Federal Reserve chairman Ben Bernanke said the economy was being confronted by "numerous difficulties" including persistent strains in financial markets, rising joblessness and housing problems.
Earlier, figures showed a sharp increase in wholesale inflation and weak retail sales.
In the UK, the FTSE 100 dropped 2.4% to its lowest close since October 2005 - with bank Royal Bank of Scotland and Carphone Warehouse among the biggest fallers.
The financial sector in Germany was also hit where the Dax index lost 1.9% and hit its lowest point since October 2006.
Meanwhile France's Cac 40 index ended 1.9% on the day, its worst finish in more than three years.
Earlier, a sell-off in Asia hit Hong Kong's Hang Seng index, which fell 3.8%, while Japan's Nikkei 225 index slid 2% and Chinese shares fell 3%.
Of the Asian losses, banks were the hardest hit as investors worried that US financial market woes would spill over to Asia.
The Nikkei 225 - which has lost 11% of its value in the past month - fell to its first sub-13,000 points close since 15 April.
India's main Sensex stock index, meanwhile, lost 4.9% in Mumbai.
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