Every country for itself | Comment: Anatole Kaletsky | Analysis: David Wighton | Stricken Iceland | Car sales slump

A global tsunami of panic wiped nearly 8 per cent off the value of the FTSE 100 index today and almost 500 points off US stocks as investors decided that Friday's $700 billion bank bailout would not be enough to ease the credit crisis.

The Dow Jones Industrial Average plunged more than 782.46 points in afternoon trading to around 9542 and dropping below 10,000 mark for the first time in four years. It recoiled to settle down 480.8 points or 4.66 per cent at 9844.71.

The benchmark index on the London Stock Exchange closed at 4589.19, down 391.06, or a 7.85 per cent fall, led by mining stocks and banks. It was the third-worst percentage fall since the FTSE 100 was created in 1984.

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European exchanges also suffered.

In the emerging markets, however, it was nothing short of carnage. Russia's RTS exchange suspended trading twice as prices dropped 19.10 per cent, the market's worst one-day fall. Trading was also halted twice on Sao Paulo’s Ibovespa index after stocks sank 10 per cent and then another 5 per cent.

"There is all-out panic," said Adrian van Tiggelen, a senior strategist with ING bank in The Hague.

For policymakers and central bankers, it was a nightmare start to the week – little helped by the failure of EU leaders to agree on a European banking rescue scheme or even, it appeared, on a common strategy.

There was continued confusion as to the detail of Germany's decision to guarantee all private bank deposits as Austria and Denmark broke ranks to follow suit and Spain threatening to do so if the EU did not take action.

Both Gordon Brown and Alistair Darling, the Chancellor, were working the phones. Mr Brown discussed the crisis with President Sarkozy of France this morning and was due to talk with Angela Merkel, the German Chancellor, later today to clarify Germany's plans.

"In the last 24 hours, the Prime Minister and the Chancellor have been spending a lot of time on the phone. We continue to urge cooperation at an EU and international level," his spokesman said.

No stock was in positive territory on the UK benchmark index but banks were again among the biggest fallers. The Royal Bank of Scotland lost more than a fifth of its value, HBOS fell 19.8 per cent and Barclays shareholders saw almost 15 per cent wiped off the value of their holdings.

An emergency Commons statement from Mr Darling did nothing to calm City nerves – especially when it became apparent that he had nothing new to offer savers despite hinting at some "pretty big steps" yesterday.

As stocks fell, investors fled to government bonds and the relative safety of the Japanese yen, which gained 1.7 per cent against the dollar.

The euro was particularly hard hit by the failure of the leaders of Europe's four biggest economies to agree on a co-ordinated bailout plan at a weekend summit, losing 1.2 per cent against the dollar and around 3 per cent against the yen.

"We are seeing an intensification of risk aversion overnight and the main beneficiaries are the yen and dollar," said Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi-UFJ.

"The market is in an extreme state of paralysis."

The markets were also in meltdown in Iceland, where foreign currency reserves have all but dried up because of the credit crunch.

The Icelandic crown lost nearly 12 per cent of its value against the euro, following steep declines last week, as ministers worked on an emergency plan to save the banking system. All dealing in the shares of the country's six major financial institutions were suspended.

In America, the selloff was wide-ranging. Citigroup and American Express were down by more than 10 per cent each in afternoon trading. Wal-Mart shares shed more than 7%. Walt Disney shares fell more than 9 per cent.

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