US and European shares have plummeted after a $700bn (£380bn) US bail-out was rejected and a slew of bad news emerged from the troubled banking sector.
The Dow Jones index lost 770 points - 6.9% - its biggest one-day point drop yet as Congress surprised observers by not backing the rescue plan.
Meanwhile the Nasdaq index fell 9.1% and London's FTSE 100 index lost 5.3%.
Confidence had already been smashed by the rescue of US bank Wachovia and Bradford and Bingley's nationalisation.
The Dow Jones closed at 10,365.4 points after the bail-out result threw efforts to calm the US financial crisis into disarray. The tech-heavy Nasdaq ended down 200 points at 1,983.7.
The plan's failure meant nobody truly knew how the financial sector would recover, with credit markets remaining almost frozen as banks remain reluctant to lend to other banks, analysts said.
They added until there was certainty over the future of the bail-out bill, there would be tremendous unrest - with sharp falls expected when markets open in Asia and later in Europe.
Meanwhile the dollar fell against other major currencies.
And concern that a worsening economy would reduce energy demand saw the price of US light, sweet crude slump by $10.52 a barrel to $96.37.
The fall on the FTSE 100, which closed at 4,818.8 points was its biggest one-day drop since January, with Germany and France's main markets seeing falls of 5% and 4.2% respectively.
The market moves came on another eventful day of global financial turmoil, which BBC Business Editor Robert Peston described as the "worst" since the credit crunch began.
London's FTSE 100 index closed at 4,818.77 points - with several banking shares losing more than 10% of their value.
Germany's Dax index ended 4.2% lower while France's Cac 40 slid 5%.
Analysts said that the market downturn was not surprising after the latest fall-out from the banking sector.
"There is a contagious effect," said Darren Winder, head of macro and strategy research at Cazenove.
"The implications of a fallout from (the credit crunch) are far-reaching, there are dozens of quoted banks in Europe, so it would seem unlikely that they would all be unaffected by this."
The lack of support in the House of Representatives for the plan to bail out Wall Street came despite calls by President Bush for lawmakers to back it.
The bill had been designed to end the credit crunch - and send a strong signal to the markets.